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IHS: iPhone 5c Doesn’t Expand Apple’s Market

El Segundo, Calif. – Apple’s lower cost iPhone 5c won’t spur a major increase in iPhone sales in the second half of 2013, but if Apple begins selling iPhones to China’s largest carrier, China Mobile, iPhone sales growth will accelerate, an IHS analysis found.

Although the iPhone 5c did not address the low end of the market, the phone nonetheless “represents a major departure from its [Apple’s] previous product strategy, which could improve the company’s competitiveness,” IHS said.

 New iPhone models will now compete head-to-head with many more smartphone models from smartphone rivals, IHS continued. “Previously, competitors only encountered new iPhone opposition at the premium end of the market and competed with an older former flagship model in this segment,” the company explained.

  Nonetheless, although the updates that Apple is making to its iPhone line “are necessary for Apple’s success in the mobile handset market in 2013,” the updates “are not sufficient for the longer term,” said Ian Fogg, IHS director for mobile and telecoms. “Apple will need to innovate significantly in 2014 with both improved software and new iPhone hardware to counter the growing threat from Android smartphones and ensure that Apple’s mobile success continues,” he said.

 At an unsubsidized cost of $549, the iPhone 5c remains at the same price point as the existing mid-range iPhone 4S, said Francis Sideco, IHS director for consumer electronics and communications technologies. “In light of this pricing, the 5c appears to be a midrange product that cannot significantly expand the available market for the iPhone line to lower income buyers. As a result, the arrival of the 5c will not spur a major increase in iPhone sales in the second half of 2013 compared to previous expectations.”

  If Apple had hit an unsubsidized price point of a $350 to $400, he said, “the company might have had a chance to expand its smartphone shipments beyond what we originally expected in the second half.” Even at a subsidized price of $99 with a two-year contract, he said, the 5c “will not spur sales because it does not materially expand Apple’s addressable market past the level we had already taken into account.”

IHS is maintaining its prediction of 86.1 million iPhone shipments in the second half, up 25 percent from 68.7 million in the first half and a 15 percent increase from 61.1 million in the first half of 2012.

 The 5c and premium 5s, as well as the launch of the iOS 7 OS, shows that “Apple is taking steps to bolster its share of the global smartphone market in the face of rising competition,” said Fogg. Apple is now also innovating at lower price points, he added, because the iPhone 5c marks the first time Apple has built a fresh handset design for the midrange smartphone market segment. “By using a visibly different design for the iPhone 5c rather than repurposing an old flagship, Apple is minimizing the risk of cannibalization of its more expensive iPhone models,” he said.

 Apple still has a way to go, however.  Apple’s portfolio lacks large-screen smartphone models with 5-inch 1080p displays, IHS noted. But that could change next year because iOS 7 offers a variable font size setting the IHS said sets the stage for future larger screen iPhones.

IHS could revise its iPhone sales projections for 2013 if state-run China Mobile decides to offer the iPhone 5c and iPhone 5s, both of which support the TD-LTE standard used by China Mobile. China’s largest carrier enjoys a subscriber base of 710 million subscriptions.

The iPhone 5c’s support for more LTE bands will also help the company in Europe, given that the current iPhone 5 supported only one European LTE band (1.8Ghz), the company noted.

As for the new iOS 7, IHS said the new iPhone operating system “significantly strengthens the appeal of the iPhone with many new features alongside the visual transformation.” The most notable improvements  include improved location support with better local recommendations and a “new highly organized notifications tray, better background app multitasking, and sophisticated photo functionality.”