Since Apple Inc. (NASDAQ:AAPL) unveiled the iPhone 5C, analysts have not been able to stop talking about the device’s high price. UBS analysts note that they have been cautious on Apple suppliers for some time and that this week’s unveiling of the device just affirmed their cautious stance.
Questions about Apple’s strategy
Analyst Nicolas Gaudois and his team issued a report to investors explaining the questions they still have for Apple Inc. (NASDAQ:AAPL) and the possible effects the company’s potential sales problems could have on its suppliers. They said Apple faces a major dilemma in trying to choose between continuing to do “great products” and lowering the cost of its devices.
Now that the iPhone 5C and its selling prices have been unveiled, the analysts said it looks like Apple is having an even bigger problem with this than they thought previously. They note that the 5C’s price is $150 higher than their estimate of $549, which was still higher than overall consensus.
They believe Apple has created an even bigger problem for itself by not solving one of the biggest problems it faces. They don’t think the pricing strategy for the iPhone 5C will help Apple increase its total addressable market, and worse still, they don’t believe there is enough of a difference between it and the iPhone 5S. This means the cannibalization risk of the flagship model may end up being even worse than they previously thought.
Potential effects on Apple’s suppliers and Samsung
UBS analysts lowered their estimates on certain suppliers of Apple Inc. (NASDAQ:AAPL). They downgraded Pegatron Corporation (TPE:4938) (OTCMKTS:PGTRF) from Buy to Sell because of its focus on production for the iPhone 5C. They also downgraded FIH Mobile Ltd (HKG:2038) from Buy to Sell and remain cautious on Hon Hai Precision Industry Co., Ltd (OTCMKTS:HNHPF) (TPE:2317).
Of course it’s natural to question whether Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) will benefit from the high price of the iPhone 5C. UBS analysts see Apple Inc. (NASDAQ:AAPL) presenting a smaller risk of market share loss for Samsung in the lower end of the high end smartphone market. In fact, they revised upward their fourth quarter smartphone estimates for Samsung to 86 million.