Rush to judgment on iPhone 5C and China?

The day-after verdict: Apple blew its China chances by pricing itself into an even smaller niche. Not so fast.

Apple Store in Beijing, China. Getty Images
As hissy fits go, this one was quite a doozy.

One day after Apple announced the iPhone 5C, its budget smartphone, Wall Street sent Apple shares down 5.4 percent because, well, this was a marketing disaster, a pricing miscue, and an otherwise major messup by the CEO. A "threefer!" The snap judgment: Apple blew its China chances by pricing itself into an even smaller niche. (Oh, bring back the halcyon days of Steve and the Magic Kingdom when all was good and Apple could do no wrong. Ahem. Sure.)

Much of the pessimism focused on anecdotal reports that Chinese consumers were turned off by Apple's pricing. The the device costs 4,488 yuan price tag, the equivalent of $728. Consider, by comparison, that Xiaomi offers a high-end configuration for less than $350.

"I feel cheated!" one Weibo user wrote. "The 'c' in iPhone 5c is supposed to mean 'cheap,' but now that they've announced the price, I can see that it actually isn't that much cheaper at all!"

In fact, a survey conducted by Weibo, China's biggest social network, reported that only 2.6 percent of the 35,000-plus respondents it surveyed indicated no interest in buying an iPhone 5C. What's more, 89 percent of the respondents said the device was "too expensive."

That was the catalyst for the financial networks to drag the talking heads in front of the cameras to opine about how a budget iPhone priced at more than $700 would never do in a China market.

Based on 24 hours worth of evidence, the clairvoyance of the fast money crowd is impressive. But keep the following in mind:

  • The absence of news about the highly-anticipated distribution deal with China Mobile, the world's largest wireless operator, obviously left a lot of investors disappointed. But unless a dead drunk Tim Cook walks into the office of his opposite number at China Mobile and barfs into his lap, this is going to get done. In preparation, Apple has already received the last license it needs to run its smartphone on China Mobile's network. When the negotiators do clinch an agreement, it will be very big news. Apple might gain another six points in China market share -- roughly 12 million units -- over the next year, according to Morgan Stanley. Do the math; that's a lot of money.
  • The other big worry: How will the iPhone 5C be able to square off against offerings from lower-cost manufacturers like Xiaomi, ZTE, Huawei, and others that price their products aggressively? Well, yes. On the surface, that's true. Apple will never be competitive with that crowd when it comes to retail pricing in China. Then again, why head down that pricing rabbit hole? As it grows more prosperous, China's growing middle class will demand more of the same sorts of premium quality products that western middle classes desire. Now it's put to Apple figure out how to make consumers want to spend more -- the same challenge that it faces in Europe and the U.S.
  • Apple still has maneuvering room. There's the iPhone 4s, which continues to be sold in China (for $0 on contract.) And for now, at least, Apple still sells the iPhone 4, according to its China Web site. There wasn't much discussion during the Apple press conference Tuesday, but those products continue to sell well in China. If Apple wants to get aggressive in the lower-end of that market, it has a product portfolio to play with.

But in the meantime, isn't it so much more fun to run around with your hair on fire?

 

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