The unveiling of two new iPhones raised fresh doubts Wednesday about Apple's strategy to expand its smartphone market share, prompting a slide in the company's share price and harsh analyst comments.
Apple failed to slash prices enough to make an impact in key emerging markets and with budget-conscious smartphone buyers, and did little to show it has regained its edge in innovation, analysts said.
Shares slid 5.9 % to $465.50 in midday trade in New York, a day after the technology giant presented the two new iPhones as part of an effort to regain momentum in the smartphone market.
While the new iPhone 5C is being offered to US customers at $99 with a subsidized carrier contract, the unsubsidized price will be $549 in the United States, and more than $700 in China.
Analysts at the research firm Trefis said the iPhone launch "turned out to be a dampener of sorts, as the company priced what was expected to be a significantly cheaper iPhone at a hefty $550 and did not introduce any new products such as an iTV or an iWatch."
Members of the media review the new iPhone 5c and 5s during a new product announcement at Apple headquarters in Cupertino, Calif. Photo: AP/Marcio Jose Sanchez
"So much for the low end," said Credit Suisse analyst Kulbinder Garcha in a research note.
"We remain disappointed with Apple's decision to remain a premium priced smartphone vendor."
Garcha said that the new top-line iPhone 5S was "lacking real innovation" and that the lower-cost version may hurt sales of the premium product.
"The iPhone 5S has a new apps processor, improved camera functionality and new motion sensor functionality. However, these are not game changers and are more evolutionary rather than revolutionary changes," the analyst said.
"The iPhone 5C is essentially a multi-colored, plastic iPhone 5 and could cannibalize higher end sales and account for over 50 % of unit mix over time bringing lower gross profit dollars."
Jefferies analyst Peter Misek said the new devices were "lovely phones" but that the launch "still leaves Apple with a product gap in the low-end."
The five colors of the new iPhone 5C are seen after Apple Inc's media event in Cupertino, California. Photo: Reuters/Stephen Lam
Walter Piecyk at BTIG Research said Apple is not doing enough to target the customers buying phones without a carrier subsidy, which is the norm in many places around the world.
"The pricing on the iPhone 5c is simply not low enough to adequately address the significant global growth opportunity that we believe exists with unsubsidized prepaid customers that have not yet bought a smartphone," Piecyk said in a note to clients.
"We believe Apple is foregoing a valuable and relatively easy way to return to earnings growth. The real question is whether Apple plans to ever go after these markets or rather just remain a high-end phone maker."
Bank of America/Merrill Lynch analysts downgraded their outlook for Apple to "neutral" over disappointment on the new handsets.
Bank of America analyst Scott Craig cited the "lack of a 'lower-end' iPhone and price points that will be too high to increase penetration in emerging markets."
He also expressed dismay that Apple did not, as expected, announce an agreement with China Mobile, which has some 700 million subscribers.
A journalist uses her iPhone 5 to take a photo of a new yellow iPhone 5C at Apple Inc's announcement event in Beijing. Photo: Reuters/Jason Lee
Apple said it will begin taking orders on Friday, and on September 20 the two devices will go on sale in the United States, Australia, Britain, China, France, Germany, Japan and Singapore.
The iPhone 5C is part of Apple's bid to counter the flood of low-cost smartphones from rivals, most of which use the Google Android operating system.
The smartphone market is now dominated by Android devices, with roughly three-fourths of all handsets, but a forecast by research firm IDC suggested Apple will increase its share this year to 17.9 % from 16.9 %.
Apple executives argued that the iPhone 5C is a "beautiful" device despite its reduced cost, and that the 5S would be "the gold standard in smartphones."
Apple said its iOS 7 software will debut September 18. It includes a free iTunes Radio Service featuring more than 200 stations "and an incredible catalog of music from the iTunes Store."
People check out several versions of the new iPhone 5C after Apple Inc's media event in Cupertino, California. Photo: Reuters/Stephen Lam