Consumers Prefer the iPhone 5S Over the 5C

Supply chain modifications ignite speculation that consumers prefer the more expensive iPhone model

On Wednesday, a source familiar with Apple’s supply chain said Apple is cutting production of its iPhone 5C one month after its release, reported Reuters. Simultaneously, Apple has increased production of its high end 5S at one of its largest suppliers, the Wall Street Journal reports. Both phones were also released simultaneously. Analyst speculate the cheaper model may have been priced too high and also sparked concerns from some that the cheaper 5C may be eating into premium sales, eroding margins.

The source, who asked not to be identified, said Pegatron Corp has had a reduction of about 20 percent in assembly orders of the iPhone 5Cs. Another major assembly contractor for the 5C, Hon Hai Precision Industry Co, has experienced a reduction of about one third in its orders over the same period. Quoting two Hon Hai executives, the Wall Street Journal reported Apple increased orders for the 5S in the fourth quarter. Consumers apparently prefer to spend a little more and purchase the pricier 5S, to Apple’s benefit. Shares rose Wednesday on the news, breaking the $500 per share watermark, a high for the month.

Michael Walkley, analyst at Canaccord Genuity, says, “Survey work indicates a significantly higher sell-through mix of iPhone 5s versus 5c that should benefit near-term average selling prices and margins.” He puts the ratio of sales at 2.5 to one, 5S over 5C. The high end 5S with 16GB starts at $649, while the 5C is $100 cheaper in the United States. Supply chain adjustments are common in the electronics industry, cautioned Apple executives and some analysts; investors should not read too much into the modifications.

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