Apple Inc. (NASDAQ:AAPL) has suffered a bit of a bashing in the wake of its iPhone 5c and iPhone 5s release. Stock in the company is down more than 5 percent since Monday’s open, and analysts have issued a slew of downgrades today. Most of the coverage is negative, but it’s based on what Apple Inc. (NASDAQ:AAPL) didn’t do with the iPhone 5c.
It’s time to take a look at what Apple Inc. (NASDAQ:AAPL) did do with the new smartphone, and how that might effect its business, rather than why the disappointing phone won’t do what analysts predicted. According to Citigroup Inc (NYSE:C) analyst Glen Yeung, the iPhone will not change Apple’s position in emerging markets.
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Apple doesn’t really care about emerging markets
Apple Inc. (NASDAQ:AAPL) didn’t introduce a low cost iPhone, because low cost means low margin, unless the company reduce the quality of the product and kills its most valuable asset—the Apple brand—in the process. Apple isn’t magic, and investors can’t have everything. Apple Inc. (NASDAQ:AAPL) chose to keep its high margins.
It’s difficult to tell just yet, but estimates for the gross margin of the iPhone 5c are around 56 percent. That’s an incredible number, and it should bolster the company’s gross margin. That’s the number that Apple Inc. (NASDAQ:AAPL), and usually the analysts, really care about. If investors were expecting a cheap iPhone at those margins, they were kidding themselves.
Emerging markets are all about lowering prices and lowering margins. Apple Inc. (NASDAQ:AAPL) refuses to commoditize their smartphones. Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and other Android makers are fine with turning the industry into corn, but Apple Inc. (NASDAQ:AAPL) will not play that game.
Apple is fine with its small share of the EM market as long as it retains its profits. Samsung is looking for a massive share with little to show for it.
The iPhone 5c is a valuable product
Alongside the gross margin, Apple Inc. (NASDAQ:AAPL) redesigned the iPhone 5c in a limited way. That redesign should help spur sales of the older iPhone. Everybody wants a new phone. Apple may have dressed up its old model to look new, but it is, in the mind of many consumers, a new phone.
The iPhone 5c is a phone comparable in power and quality to anything the Android world has to offer. It sells at an incredible margin, and sales may be higher that previous old iPhones because of the new design. The iPhone 5c is a boon to Apple Inc. (NASDAQ:AAPL) investors.
The single most important attribute of the iPhone 5c is that it keeps the Apple Inc. (NASDAQ:AAPL) brand name spotless. It’s well designed and just as fast as anything competitors have to offer. It will have iOS7, and will run all of the Apps available to iPhone users.
Cannabilization problems have disappeared. If more consumers opt for the iPhone 5c, Apple Inc. (NASDAQ:AAPL) won’t lose much in the way of profits. Apple Inc. (NASDAQ:AAPL) knew what it was doing with the iPhone 5c, but Wall Street didn’t.
The Street is now punishing the company for falling down on a plan it never had. Apple Inc. (NASDAQ:AAPL) is down 5 percent because it saved its brand name from the analysts who advised they dig at its value until it becomes emaciated. The iPhone 5c is of incredible value to Apple Inc. (NASDAQ:AAPL). The imaginary phone analysts were looking for something that could have ruined the company.