Apple iPhone 5s Vs. 5c: Why CEO Tim Cook Defends The Budget iPhone 5, Despite Lagging Sales

Apple Inc. (NASDAQ: AAPL) on Monday announced earnings for its fiscal fourth quarter of 2013, but during the ensuing conference call with investors, Bill Shope of Goldman Sachs asked Apple CEO Tim Cook where the iPhone 5c stands in the current iPhone lineup, and how Apple would address the “cost sensitive regions” of the smartphone market, if at all.

“If you look at what we’ve done, we’re selling the iPhone 4s as our entry offer,” Cook told investors on Monday. “We sell the iPhone 5c as the mid-tier and the 5s. Our goal is to have growth across the iPhone but we want each of those categories to grow as compared to what we were doing previously. If you look at the total that we're making in the low end and mid-tier and high end, the sum there, we'd like to grow in each one of those. We're really pleased that we did that.”

Apple may be hoping for growth across all iPhone lines, but the iPhone 5c has appeared to be significantly less popular than the high-end iPhone 5s, at least in terms of sales. According to Boston-based Localytics, the iPhone 5s was roughly 3.4 times more popular than the iPhone 5c in its first week of availability in the U.S.; similarly, Consumer Intelligence Research Partners told AllThingsD the iPhone 5s has been outselling the iPhone 5c by more than a two-to-one margin, adding the iPhone 5s accounted for 64 percent of new iPhone sales and the iPhone 5c for just 27 percent.

The gap in popularity between the iPhone 5s and iPhone 5c may have to do with consumers' expectations for both Apple phones. The iPhone 5s and iPhone 5c both released with all the same features rumors had indicated, but the iPhone 5c surprised fans, analysts and investors when Apple announced its price would not be as attainable as many had previously hoped. Rather than being an iPhone offering worth $350 to $400 unsubsidized, the iPhone 5c sells for $549 without a contract, or the equivalent of $735 in China; selling a more affordable iPhone in China was reportedly a major driving force behind creating such a cheap iPhone in the first place.

Cook reiterated that the iPhone 5c was never meant to be a “budget iPhone” many had originally proclaimed it to be (even before its unveiling), and that the iPhone 4s was designed to replace the successful iPhone 4 in the current lineup.

“What we did with our lineup this time was the 4s is replacing the 4,” Cook said. “If you look at the US as an example, the 4s is now free. The 4 was free previously. When you translate that out of the US, it depends on the market as to what specifically happens. Currency changes and the strength of the dollar doesn't always play in our favor in some goes. We see the 4s as our entry iPhone offer that gives somebody the ability to access the entire ecosystem as a fantastic product. We understand that there is elasticity in that market and it will move accordingly.

“I realize that some people were reading rumors about that the entry phone would be the 5c, but that was never our intent obviously. Our entry iPhone is the iPhone 4s and as you know from comments that I’ve made previously we were selling the iPhone 4 in very good volumes and as we began to experiment in different regions at somewhat lower price points we saw a fair amount of price elasticity and so we’re hoping and thinking that, that will continue with the 4s.”

Cook defends the iPhone 5c for two major reasons: The iPhone 5c incentivizes customers to spend an extra $100 to buy the newest and most expensive iPhone, and for those who don’t want to buy the iPhone 5s, Apple enjoys huge profits off every iPhone 5c unit sold. But more importantly, Cook is also aware that the iPhone 5c will soon become the low-tier iPhone option in 2014; if the iPhone 5c were “free” in 2013 like it will be next year, analysts and investors wouldn’t be so worried about the future of Apple’s colorful plastic iPhone. But since the iPhone 5c wasn’t as cheap as analysts, customers and investors were hoping for, the iPhone 5c exists in a purgatory of sorts -- not enough for high-end iPhone fans, but far too expensive for customers in the lower tax brackets. That will change next year, when the colorful iPhone 5c becomes Apple’s cheapest iPhone option, which is why Tim Cook remains patient; in many ways, the iPhone 5c is more forward-thinking than the iPhone 5s.

After its initial release date on Sept. 20, Apple released the iPhone 5s and iPhone 5c in 35 countries last Friday, and both new phones will arrive in an additional 16 countries on Nov. 1.

About The iPhone 5C

The iPhone 5c either replicates or improves upon the features in its predecessor, the iPhone 5, but there are a few noticeable differences. First, Apple has replaced the all-aluminum unibody enclosure of the iPhone 5 with a reinforced polycarbonate solution, and the iPhone 5c will also release in five colors instead of two (black and white), i.e. blue, green, yellow, pink and white.

Inside the shell of the iPhone 5c, most of the specs look identical to those in the iPhone 5. Running on the same A6 chip, the iPhone 5c features the same 4-inch Retina display, the same 8-megapixel camera with 2.4 aperture and single-LED flash, and will also run iOS 7 upon its release. Apple has improved a few features in the iPhone 5c, including the front-facing FaceTime camera and the phone's battery, and the iPhone 5c also supports 13 LTE bands, which is more than any other current smartphone (besides its cousin, the iPhone 5s).

About The iPhone 5S

The iPhone 5s features the same 4-inch Retina display and chamfered diamond-cut edges, but the phone also comes with a number of new innards. The iPhone 5s also features a new A7 processor -- with CPU performance 40 times faster and GPU performance 56 times faster than the original iPhone -- and Open GL, just like the new Nexus 7. More notable, however, the iPhone 5s comes equipped with Apple's new M7 chip, which contains all the motion-tracking hardware Apple needs to make its iWatch a reality. By packing so many components into the M7 motion co-processor, including an accelerometer, gyroscope and compass, the M7 can continuously measure motion data for the newest generation of health and fitness apps.

The iPhone 5s also features a slightly modified battery for greater life, a new camera system for slow-motion video photography and a fingerprint sensor called Touch ID, which lets users authenticate ownership and user passwords by simply holding their thumbs on the iPhone’s signature home button.

Touch ID is 170 microns thin, it senses 550 ppi and it can scan sub-epidermal skin layers. With 360-degree readability, you can hold your thumb in any orientation and it can still be read correctly. The entire apparatus contains a tactile switch, Touch ID sensor, a stainless-steel detection ring and a laser-cut sapphire crystal, which makes it unscratchable. Touch ID can also handle multiple fingerprints, so you can grant access to your iPhone 5s to only certain people.

The iPhone 5s also features a new camera system, which includes a new pill-shaped dual-LED flash and a tighter aperture. The dual-LED flash will help for lower-light settings, but its new camera aperture will also help control the amount of light in each photo. For more on the iPhone 5s, check out our review and hands-on with the seventh-generation iPhone, and learn more about why it's worth the price to upgrade.

What do you think of the iPhone 5s and iPhone 5c? Are you underwhelmed by the iPhone 5s? Let us know your thoughts in the comments section below.

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