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

Reuters

By Clare Jim and Paul Carsten

TAIPEI/BEIJING, Oct 16 (Reuters) - Apple Inc iscutting production orders for its plastic-backed iPhone 5C amonth after launch, a source familiar with its supply chain saidon Wednesday, fueling speculation the cheaper model of its maingadget may have been priced too high.

Apple has asked one of its largest suppliers to increaseproduction of the top-tier 5S, which went on sale at the sametime, the Wall Street Journal reported. said. Analyst said thisallayed concerns that the cheaper 5C will eat into premium salesand erode margins.

Apple has told manufacturers it will reduce orders for the5c smartphone in the final three months of the year, the sourcetold Reuters. The company added the 5C to the lineup inSeptember along with the flagship iPhone 5S.

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

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

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

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

Canaccord Genuity's "survey work indicates a significantlyhigher sell-through mix of iPhone 5s versus 5c that shouldbenefit near-term Average Selling Prices and margins," Walkleysaid.

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

Spokespersons at Pegatron, Hon Hai and Apple declined tocomment.

Analysts and Apple executives have cautioned against readingtoo much into supply chain adjustments, which are common in thefast-moving electronics industry.

Investors will get some idea of the demand for the twophones when Apple reports its fiscal fourth quarter resultslater this month. But the iPhones numbers from July-Septemberwill include sales of only a month of the new models.

HOLIDAY QUARTER BOOST

Apple is expected to sell 33 million to 36 million iPhonesin its fiscal fourth quarter, rising to over 50 million in thetypically strong holiday quarter, which will mark the first fullquarter 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 versionof 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 bolstersales of its iPhones and iPads and defend its market shareagainst rivals that are rapidly raising capabilities andlowering prices.

The reception for the 5c has been lukewarm in China, whichChief Executive Tim Cook has identified as one of Apple's mostimportant markets. Some local bloggers say the price differencebetween the 5C and 5S is too narrow.

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

"We're not especially concerned with 5C order cuts at thispoint because they appear to be offset by strong demand andincreased production for the 5S, said Brian Colello, analystwith Morningstar said. "As far as emerging markets, the 5C issimply not cheap enough to gain traction with customers that canbuy $150 Android devices."

Previously, Apple had said sales for the 5S and 5C in thefirst three days of their launch in September totalled 9million, 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, forecastsassemblers will ship around 23 million 5C units in the finalthree months of this year and 10 million in the first threemonths of next year.

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

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