The Truth About Apple’s iPhone 5C Production Cuts

The Truth About Apple’s iPhone 5C Production Cuts

There have been numerous reports lately claiming that Apple has dramatically decreased their orders for the iPhone 5C, including one just this morning from the Wall Street Journal. Sadly, the vast majority of these reports, and the meta-reports covering them, have assumed the worst, and put the most negative possible spin on the situation by suggesting that the iPhone 5C is a “dud” or has “failed to meet Apple’s expectations.”

iPhone_5C_colors

Unfortunately, these stories seem to be deliberately excluding context, and jumping to dubious (or at least uncertain) conclusions without supporting evidence.

From  today’s WSJ report:

Apple Inc. has reduced orders for its lower-end iPhone 5C, people familiar with the situation said, fueling concerns about weaker-than-expected consumer demand and the company’s pricing strategy.

[…] Apple told its two assemblers, Taiwan-based Pegatron Corp. and Hon Hai Precision Industry Co. [AKA Foxconn] , that it would cut this quarter’s orders for the iPhone 5C […] Pegatron, which analysts said assembles two-thirds of iPhone 5Cs, was told the order would be cut by less than 20% […] Hon Hai, which assembles the remaining 5Cs, was told the order would be cut by a third…

There’s been a fair amount of smart analysis already by responsible writers and editors – so rather than write a detailed discourse of my own, I’ll highlight the work of some of my smart colleagues.

First up, many reports ignore that this follows a previous report from notable Apple analyst (and likely the most accurate Apple analyst on record today) Ming-Chi Kuo of KGI Securities. Ben Lovejoy reported on this yesterday, for 9to5Machighlighting a critical point (which I have emphasized at the end).

KGI’s Mingchi Kuo [sic], an analyst with a solid track-record, and the man who came closest (almost)to calling opening weekend sales of the iPhone, now believes Apple shipped ‘just’ 11.4M iPhone 5c handsets in September, rather than the 17M he had earlier forecast, reports Business Insider. “Kuo is now estimating Apple shipped 11.4 million 5Cs in the September quarter, a 33% drop from his original estimate. He also says he expects 5C sales to be just 10.4 million units for the December quarter, a 10% sequential drop.”

This makes some sense of the rampant discounting seen on the 5C (which actually started at Walmart before launch), but doesn’t necessarily mean that iPhone sales as a whole are down … 

Another smart point comes from Sammy the Walrus IV, who notes that the reports may technically be mostly correct – but that the reason is due to Apple shifting retail supplies due to actual demand for both the iPhone 5C and 5S. Note: This certainly does NOT entail that iPhone 5C sales have been “underwhelming,” or that the device has somehow failed at retail.

As Sammy the Walrus rightly notes:

Benedict Evans makes yet another keen observation, noting that it does not make logical sense to derive any definite conclusions from these claims:

Another particularly astute comment comes from Richard Devine of iMore, who notes, and rightly so, that an order cut does NOT speak to poor sales of the iPhone 5C:

Cutting orders doesn’t necessarily mean it isn’t selling. It could quite easily also mean that Apple just made far too many of them to begin with. After all, it’s the first iPhone available in 6 different colors, so there’s bound to be a healthy level of inventory around. As for the pricing strategy; Apple doesn’t sell ‘cheap’ devices. It’s been said before, and it’ll be said again. The iPhone 5c is priced at around the same mark the iPhone 5 would have been had it not been retired, and plastic doesn’t always mean cheap. Anyone who’s held an iPhone 5c would say the same.

Sebastien Page of iDownloadBlog also has some very intelligent and well considered analysis which is worth reading in its entirety (seriously, read it.  Sebastian knows his stuff) – but one of the more significant gems is as follows:

With enough supply to satisfy demand, I wouldn’t be surprised if iPhone 5c production cuts were due to the fact that Apple has enough devices on hand now that it doesn’t have to worry about not being able to meet demand. The initial peak of demand has passed, and Apple can now slow down production a bit while still meeting demand.

And at last, MacRumors writer Richard Padilla also made some particularly keen comments that should be well noted:

It remains difficult to say, however, whether Apple’s cuts are a result of lower than expected demand or perhaps simply part of a planned scaling back following an initial surge to ensure that distribution channels are adequately filled heading into the holiday season.

[…] Apple announced last month that the iPhone 5s and iPhone 5c had sold a record nine million units during their launch weekend, but the company did not break down the sales distribution between the two models. However, a report from earlier this month stated that the iPhone 5c finished second in sales during the month of September at US carriers AT&T and Sprint, and finished within the top three in sales at all four major carriers, which suggests that the lower-cost iPhone is at least selling fairly well.

The myth of the ‘Budget iPhone’ and Apple’s iPhone 5C ‘Pricing Problems.’

Many sites have claimed that “lack of iPhone 5C sales” is due to some pricing failure on Apple’s part. This is about as stupid as Apple punditry gets. First, it assumes that Apple was trying to market a “budget'” iPhone that would explode in emerging markets. In truth, there are no indications that this was EVER their plan. Apple does not, and never has, done “cheap” products.

Instead, they produced a slightly more affordable device that seems to have greater appear among the younger segment of users, and which carriers are putting some effort into discounting and making more appealing to consumers. The “budget iPhone” line of reasoning is unjustified, untrue, and should NOT be the basis of assuming any doom in Apple’s future.

OF COURSE The iPhone 5C is Selling Less Than The 5S

The iPhone 5C is essentially last year’s model. It’s an iPhone 5 with a colorful new shell. Nobody in their right mind would expect last year’s iPhone to sell at anywhere close to the numbers of a new model with revamped internals, better specs, more power, and new hardware features. To suggest anything contrary is ludicrous.

CIRP_iphone5sc_sales_by_model

You’ll see the same thing by looking back on Apple’s iPhone 4S sales following the iPhone 5 launch, as illustrated in the above chart accompanying a report by Consumer Intelligence Research Partners (CIRP).

Wrapping it Up: What it All Means

Apple CEO Tim Cook (and many other smart people who aren’t obsessed with sleazy page view whoring) has previous strongly cautioned against supplier shipments and analyst claims as an indicator of sales performance. There’s a reason for that: It’s a fact, and it makes sense. Assuming that all analyst claims are magically 100% accurate, and then deriving dubious conclusions from those claims is sloppy writing, and betrays the readers of any site who publishes such material.

Long story short: Think about what is being said before taking any analyst’s word as gospel truth. Expect evidence, and take note at sites who make wild claims and jump to conclusions based on analyst statements. With any luck, that will prompt some improvement in the Apple blogging scene as a whole.

I could go on for ages about similar reporting issues with the many sites that would rather misread their leaders than make a solid attempt to find the truth. Shame on them. That’s not what you’ll get here at MacTrast so long as I have a say in this site’s editorial content.

And that, my friends, is why you should not believe everything you read on the internet.

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