Published October 17, 2013
Apple Inc (AAPL) shares opened 0.8 percent higher as investors looked to strong sales for the flagship iPhone 5S, shrugging off signs of less-than-stellar orders for the cheaper 5C model.
Apple has told manufacturers of the 5C that it will cut orders of the smartphone for the final three months of the year, a source familiar with the supply chain situation said.
But analysts said the decision by consumers to spend more and buy the pricier 5S model would benefit Apple and the company's shares touched a one-month high above $502.
"iPhone 5S is the new flagship and if 5S is increasing (its sales) and 5C is decreasing and the fact that 5S production has increased is positive for Apple's margins," Susquehanna analyst Chris Caso said.
Canaccord Genuity analysts said the iPhone 5S is outselling 5C by 2.5 times to 1, boosting Apple's margins.
Pegatron Corp, which assembles many of Apple's iPhone 5Cs, had seen orders reduced by less than 20 percent, the source told Reuters on Wednesday, declining to be identified because the information is sensitive.
Hon Hai Precision Industry Co, Apple's other major assembly contractor for the 5C, has had its orders for the same period reduced by a third, the Wall Street Journal reported.
However the newspaper, quoting two Hon Hai executives, added that Apple had raised orders for the 5S for the fourth quarter.
The 5C and 5S were launched in September ahead of the year-end holiday season when sales tend to peak.
In the United States, the 5C is $100 cheaper than the premium 5S, which retails for $649 for the 16 GB model.
The cut in 5C orders will reinforce investor sentiment that the plastic-backed 5C phone was overpriced and would not be well-received by consumers, some analysts say.
"This reflects a failure in Apple's pricing strategy," said Bevan Yeh, a Taipei-based senior fund manager at Prudential Financial Securities Investment Trust. "The price differentiation between 5C and 5S is too small. It's an iPhone 5 with plastic casing and isn't worth the price."
Spokesmen at Pegatron and Hon Hai declined to comment, while Apple could not be immediately reached for comment.
In China, one of Apple's most important markets according to Chief Executive Tim Cook, the 5C's reception has been lukewarm. Some local bloggers say the price difference between the 5C and 5S is too narrow.
Apple said previously that sales for the 5S and 5C in the first three days of their launch in September totaled 9 million, and that demand for 5S exceeded initial supplies. It did not give separate figures for the 5C and 5S.
Prudential, which does not own Apple shares, forecasts assemblers will ship around 23 million 5C units in the final three months of this year and 10 million in the first three months of next year.
Some analysts caution against correlating the cuts to Apple's supplier orders with poor sales, because of the complexity and opacity of the company's supply chain.
"We've seen this several times. There are too many moving parts in the supply chain to draw any conclusions," said Benedict Evans, who covers mobile and digital media at Enders Analysis, a research consultancy in London.
"We don't know what other suppliers they use or what inventory they already have."
Apple shares rose as high as $502.53 at the open on the Nasdaq on Wednesday.