Apple cuts orders of iPhone 5C as consumers prefer 5S

Reuters
File of Apple iPhone 5C phones are pictured at the Apple retail store on Fifth Avenue in Manhattan, New York
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Apple iPhone 5C phones are pictured at the Apple retail store on Fifth Avenue in Manhattan, New York in this September 20, 2013 file photo. REUTERS/Adrees Latif/Files

By Clare Jim and Paul Carsten

TAIPEI/BEIJING (Reuters) - Apple Inc is cutting production orders for its plastic-backed iPhone 5C a month after launch, a source familiar with its supply chain said on Wednesday, fueling speculation the cheaper model of its main gadget may have been priced too high.

Apple has asked one of its largest suppliers to increase production of the top-tier 5S, which went on sale at the same time, the Wall Street Journal reported. said. Analyst said this allayed concerns that the cheaper 5C will eat into premium sales and erode margins.

Apple has told manufacturers it will reduce orders for the 5c smartphone in the final three months of the year, the source told Reuters. The company added the 5C to the lineup in September along with the flagship iPhone 5S.

Pegatron Corp, which assembles many of Apple's iPhone 5Cs, had seen orders reduced by less than 20 percent, said the source, who asked not to be identified because the information is sensitive.

Hon Hai Precision Industry Co another major assembly contractor for the 5C, had its orders for the same period reduced by a third, the Wall Street Journal reported.

But at the same time, Apple raised orders for the 5S in the fourth quarter, the newspaper said, quoting two Hon Hai executives.

Analysts said the decision by consumers to spend more on the pricier 5S benefits Apple. The company's shares rose on Wednesday, touching a one-month high above $502. Canaccord Genuity analyst Michael Walkley estimated that the iPhone 5S is outselling 5C by 2.5 times to 1.

Canaccord Genuity's "survey work indicates a significantly higher sell-through mix of iPhone 5s versus 5c that should benefit near-term Average Selling Prices and margins," Walkley said.

In the United States, the 5C is $100 cheaper than the premium 5S, which starts at $649 for the 16 GB model.

Spokespersons at Pegatron, Hon Hai and Apple declined to comment.

Analysts and Apple executives have cautioned against reading too much into supply chain adjustments, which are common in the fast-moving electronics industry.

Investors will get some idea of the demand for the two phones when Apple reports its fiscal fourth quarter results later this month. But the iPhones numbers from July-September will include sales of only a month of the new models.

HOLIDAY QUARTER BOOST

Apple is expected to sell 33 million to 36 million iPhones in its fiscal fourth quarter, rising to over 50 million in the typically strong holiday quarter, which will mark the first full quarter of sales of the new iPhones.

The holiday quarter may also feature a new lineup of iPads.

Next week, Apple is expected to introduce a updated version of the tablets that compete with Amazon.com Inc's Kindle Fire and tablets made by Samsung Electronics.

Apple has come under pressure over the past year to bolster sales of its iPhones and iPads and defend its market share against rivals that are rapidly raising capabilities and lowering prices.

The reception for the 5c has been lukewarm in China, which Chief Executive Tim Cook has identified as one of Apple's most important markets. Some local bloggers say the price difference between the 5C and 5S is too narrow.

The price difference could widen next year as Apple is known for cutting prices of older models to drive volume.

"We're not especially concerned with 5C order cuts at this point because they appear to be offset by strong demand and increased production for the 5S, said Brian Colello, analyst with Morningstar said. "As far as emerging markets, the 5C is simply not cheap enough to gain traction with customers that can buy $150 Android devices."

Previously, Apple had said sales for the 5S and 5C in the first three days of their launch in September totalled 9 million, and that demand for the 5S exceeded initial supplies. It did not give separate figures for the 5C and 5S.

Prudential, which does not own Apple shares, forecasts assemblers will ship around 23 million 5C units in the final three months of this year and 10 million in the first three months of next year.

Apple shares rose as high as $502.53 at the open on the Nasdaq on Wednesday and was up 0.6 percent at $501.63 in afternoon trading.

(Additional reporting by Poornima Gupta and Soham Chatterjee; Editing by Ryan Woo, Rodney Joyce and David Gregorio)

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