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Has Apple gone sour with its new smartphones?
September was an exciting month for tech geeks around the world. This year, Samsung (SSNLF) introduced the latest additions to its Galaxy line of smartphones and phablets, and the world's first-ever smartwatch in the first week of the September; but it was Apple Inc. (AAPL) that had everybody's attention with the much-hyped launch of its iPhone 5c and iPhone 5s on September 10. The iPhone 5s was launched as a continuation of its premium priced iPhone line, while the iPhone 5c was introduced as a device for consumers in the emerging markets.

Even though Apple failed to impress critics with its two new products, the launch was a major first step in the tech giant’s evolving business strategy. Having realized that it can no longer ignore emerging markets and the threat from cheaper competition, Apple introduced two products for the first time in its history.

The reason for its strategic shift is simple: developed markets have reached saturation, and growth rests in emerging markets. According to the International Data Corporation (IDC), smartphone shipments will increase at a compound annual growth rate (CAGR) of 8.3% in developed markets through 2017, whereas shipments in emerging markets will have a much higher CAGR of 15.7% through 2017. 

Furthermore, emerging markets will experience 45% growth in the smartphone market in 2013, whereas developed markets will experience only 14% growth. These factors forced Apple to introduce a low-cost variant of its iconic smartphone, but it somehow seems to have missed the point with the iPhone 5c with its pricing.

Smartphone manufacturers know that there is significant pricing pressure in emerging markets, as consumers are price conscious and can choose from a range of low-priced smartphones. Given that context, Apple’s almost-premium-priced 5c seems to be a bad idea.

It was no wonder, then, that Apple investors dismissed the iPhone 5c as a serious offering for emerging markets. Analysts at Bank of America Merrill Lynch, Credit Suisse and UBS downgraded Apple to a neutral rating soon after the launch on the same premise that the iPhone 5c, which was supposed to be inexpensive, was too costly for consumers in emerging markets.

As more facts surfaced, analysts found that in China, Apple’s primary target market for the iPhone 5c, the phone is actually priced higher than it is in the US.

However miffed investors were with Apple’s new strategy, the market disagreed. The weekend following the launch saw Apple sell a record nine million units, turning the tables on conservative analysts and pushing them to revise their estimates. Apple’s stock soared 6% from $467.4 to $496 in pre-market trading, and Apple revised its sales guidance for the quarter to the high end of its $34-$37 billion range. After the iPhones’ stellar performance, Goldman Sachs, Morgan Stanley, Deutsche Bank and a couple of other sell side firms changed their ratings to ‘buy’, and Goldman revised its earnings per share estimates from $7.31 to $7.85.

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of merinews.com. In case you have a opposing view, please click here to share the same in the comments section.
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