The iPhone 5S/5C: No phone for Poor Men

This isn't going to be happening any time soon...
Well, whilst I won't be waiting inline for the iPhone 5S/5C (the 4S serves me well as my main caller and the Nexus 4 does admirable duty as the main mobile internet access point and backup handset), I do confess for great admiration with regards to what Apple did this September 10th, when it unveiled two phones which should have had the stock market reacting a lot more positively than it has.

Despite Steve Jobs passing into history, his influence was clear today: Apple simply gave a firm smirk of indifference to the crescendo of calls to create a cheap / low cost / budget / accessible iPhone for the masses in developing countries and budget conscious consumers in the developed world. The iPhone 5C with its plastic casing may have had analysts excited with initial leaks and guesses - poor ones - that this will be the budget iPhone that will storm the world of Android on a budget. As it turns out, the iPhone 5C will retail for USD $549 without contract - that is definitely upper range pricing for hardware that is pretty much last years iPhone 5.

What Apple did was simple: it took the core hardware from last years iPhone 5 and put it into a much cheaper and easier to assemble plastic frame. And the reason is simple.

Having spoken to people at Foxconn, I can attest to one thing about the iPhone 5: that beautifully engineered aluminium sculpture is simply a bitch and a half to make at the pace of demand with anything like a decent yield. Those chamfers - which would do Rolex proud - are hideously difficult to get right and despite what many people think about automated machines, people are the ones who assemble it. And even though it has been in production for well over 14 months, it is still a demanding phone to will be its true successor, the iPhone 5S. And the production rates of this handset won't be strong enough to meet initial demand. Apple has to get new iPhones out fast to capture initial enthusiasm.

So Apple created a 'new' model, which really was the older model in a lower cost, faster to make frame. Whilst there will be some additional marketing costs, the 'funk' factor of this colorful new handset will result in strong sales yet minimal cannibalization from the flagship iPhone 5S. That is actually what will annoy many: quite a few people I know were hoping for a price drop of the iPhone 5 as soon as the 5S was released, and they would have been more than happy with what the 5 offered. But these people now will have a choice to accept that they can get the hardware internal of the iPhone 5 at a lower the expense of a thick polycarbonate - rather than aluminium - body...or swallow the cost and get the iPhone 5S. Apple is hoping for the latter but will accept the former.

Had the iPhone 5 been kept on and the price dropped (as per earlier years practice), the per unit profit would have been significantly less than what it will be with the 5C. Whilst hard to guess at this stage, it does appear that the manufacture cost of the iPhone 5C will be about 20% less than the iPhone 5.

And that is the sort of margin one does not ignore. Apple - or more correctly Foxconn - has not been able to get the manufacturing of the aluminium body iPhone 5 to the same level of efficiency of earlier handsets, so they needed to do something radically different. And that they have done...without resorting to bottom of the barrel appeal.

Actually, the iPhone 4S in 8GB flavour is still available at USD $450 dollars...a lot of money for what is 2 year old technology...but -according to Apple - not a lot of money to enter the Apple ecosystem. That is Apples idea of a budget iPhone.

So, Apple pricing and positioning strategy continues largely as it had...but with a nod to production realities. Apple remains a premium brand, and whilst analysts may be focused on market share, Apple will continue to chase the cream at the top all around the world, whilst slowly tempting those on the cusp of Apple ownership to join the flock.

Smart move.