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Market votes 'no' on iPhone pricing

By DAN GALLAGHER MarketWatch

Publication: The Day

Published September 12. 2013 4:00AM
Apple shares fall on downgrades

San Francisco - Apple Inc. managed to wow the crowds with the high-end specs on its newest iPhone 5S, but analysts worry that the company is pricing its new lower-end device too high to grow its share in those segments that of the smartphone market that offer the most potential.

At least, that's been the early take from analysts who were watching Apple's unveiling of its iPhones on Tuesday.

By Wednesday's opening bell, three brokers - Bank of America-Merrill Lynch, Credit Suisse and UBS - had downgraded their ratings on Apple to the equivalent of neutral. All cited the high price of the iPhone 5C as a challenge for Apple in expanding its market share. Apple's shares slid by 5.4 percent to close at $467.71.

As expected, the company said Tuesday it plans to launch the iPhone 5S as its newest device for high-end users, who may be turned on by its fingerprint scanner and powerful, 64-bit processor.

Also as expected, the company launched the multi-colored iPhone 5C with a starting price of $99 in the U.S. for users who sign a two-year contract.

The iPhone 5C was expected to represent Apple's foray into the low-price segment of the smartphone market, particularly in places such as China. But few analysts so far believe that the phone at its current price will work in those tiers.

The Apple website has the iPhone 5C at the equivalent of $733 without a contract - far above the $400 that many analysts believed was the highest that Apple could go and still appeal in a market such as China.

The pricing of the iPhone 5C - which is essentially the iPhone 5 in a plastic casing - is on par with the expected price for the iPhone 5 after the introduction of the 5S, based on the company's past practices of cutting the price of its current model when a new one is launched.

"It's the same pricing scheme as the prior generation - they made no concessions," Glen Yeung of Citigroup told MarketWatch. "They were consistent if nothing else, but it does nothing for them in going after emerging markets."

Peter Misek of Jefferies & Co. said that the price of the iPhone 5C in China is especially high, considering the country's gross domestic product per family of around $5,000. He said Apple was "doubling down on the high end" rather than trying to expand its market.

"It makes no sense," he said.

Analysts believe it's important for Apple to expand its market, given that the company's sales growth has been slowing as the iPhone - which comprises more than half of Apple's overall revenue - is facing saturation in the high end.

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