This was expected to be the lower-end version, the cheap or budget phone -- whatever you want to call it -- that was supposed not only to compete more effectively with
device dominance, but also to steal share from
On Tuesday, however, at the company's long-awaited Sept. 10 event, the Street learned that Apple's new phones were -- in fact -- just dialing for profits. By listing the iPhone 5C at an unsubsidized price of $549, which is (at least) $150 more than analysts expected, it's clear that Apple has no interest in sacrificing margins for market share.
And given that the stock is down more than 5% following the announcement, it's safe to say the Street hung up on the optimism.
Now, to be perfectly honest, going the cheap route was never something that I supported. I made this known
. I can't say that I expected this sort of overreaction, either.
But let's have some perspective. Admittedly, as an Apple shareholder, I don't believe that the event -- in its entirety -- lived up to its billing, particularly since
, the world's largest carrier with over 740 million subscribers, didn't make the agenda.
Even so, I believe Apple understands its current market position. To that end, it's more than ridiculous that we, on the outside looking in, feel that we have more of an urgency to get Apple to decide between market share or margin. It was not a "flip of a coin" decision.
I'm not disagreeing that the 5C is still premium priced. But for a premium brand, this was a calculated move -- one that, I believe, signals that other product launches are certainly on the way.
Besides, Apple had sent signals during the third-quarter conference call that the phones would have been on the high end of the price range. This was why management issued guidance that was lowered by as much as 5%. This -- according to my calculations -- implied that revenue would be flat on a quarter-over-quarter basis. Essentially, I believe Apple would have guided fourth-quarter revenues higher if it had anticipated robust sales on a cheaper price-point phone.
The Street, as it is known to do, conveniently forgot this. And as expensive as the $549 price point may seem, let's not forget that Apple already has a less expensive version of the iPhone that's selling pretty well. It's called the iPhone 4S. So for Apple to immediately cannibalize a product with decent margins that is still selling well wouldn't make much sense, especially since production costs are already factored in.
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Regarding the 5C, though, I can go into all of the details about the phone's features, including the five colors, the A6 chip, better battery life, and host of other stuff. Still, according to some, this wouldn't justify Apple's "better-than-cheap" pricing strategy. It won't make a bit of difference in the minds of analysts -- many of whom have already made up their minds and downgraded the stock. But the assumption of lower-than-expected market share growth is a bit premature, if not entirely exaggerated.
But look, we can't have it both ways.
Apple is being hammered today for attending to margins, yet over the trailing 12 months, the company's "eroding margins" were all you heard about from anyone that wanted to incite fear. Besides, who's to say that Apple can't lower the price of the phones if it so choose? It's easier to justify lowering the price than raising it on finding out that it was set too low.
I also believe that Apple's new capital plan, which includes doubling the cash returned to shareholders over the next two years, might have had a lot to do with this pricing decision. Not to mention the buyback program, which jumped to $60 billion, to go along with the 15% dividend increase. Someone's got to pay for all of that.
And with the iPhone 5C, I don't blame Apple for dialing in to collect. It's an Apple product. There's always someone to answer.
At the time of publication, the author was long AAPL
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of
where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.
His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.
His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.