Apple dips toes into lower-priced waters with colorful $99 iPhone 5C

Apple dips toes into lower-priced waters with colorful $99 iPhone 5C

But disappoints analysts who expected a more aggressive counter-attack against Android in China, elsewhere

Apple CEO Tim Cook and other executives today unveiled the iPhone 5S and the plastic-backed iPhone 5C, the first time in the six-year history of the iconic smartphone that the company has gone with a two-tier strategy.

Unlike last year, there were some surprises during the 80-min. presentation, which took place at Apple's Cupertino, Calif. headquarters.

"I was surprised by the 64-bit processor and the motion processor," said Ezra Gottheil, analyst with Technology Business Research, in an interview after Apple's event. He was referring to the faster Apple-designed A7 SoC (system on a chip) that will power the iPhone 5S, and its new motion data processor, which Apple touted as the foundation for a new wave of health and fitness apps.

"Overall, the 5S is a nice step up, they did things that made sense, but there's not a lot of avenues left now to take a smartphone," Gottheil said.

For his third iPhone introduction since taking the reins from co-founder Steve Jobs in 2011, Cook kept to tradition by kicking off the event, then introducing other Apple executives to handle the heavy lifting.

"In the past, we've lowered the price of the current iPhone, making it accessible to more people. This year, we're not going to do that," said Cook. "The business has become so large, so this year we're going to replace the iPhone 5. This allows us to serve even more customers."

The replacement for the iPhone 5 will be the frequently-leaked iPhone 5C, essentially a repackaged iPhone 5 that comes in five colors, its chassis composed of polycarbonate -- not the milled aluminum featured in flagships -- with a steel frame that doubles as an antenna.

Like the iPhone 5 and its 2013 replacement, the iPhone 5C boasts a 4-in. screen with an 1,136-x-640-pixel resolution and relies on the Lightning connectivity technology for connecting to a computer, charger or accessories. It boasts the A6, the same SoC (system on a chip) used by last year's iPhone 5.

Because of the introduction of the iPhone 5C, Apple will scale back but not ditch the practice of retaining previous-generation models, which it has sold at $99 with a contract for the past year's phone. In the case of the two-year-old model, Apple has asked for zero down when customers sign a two-year contract.

The iPhone 5 and iPhone 4 will be retired, but the iPhone 4S will continue to be the bottom-end model, offered free with a contract.

The iPhone 5C will go on sale Sept. 20 at prices of $99 for a 16GB device and $199 for 32GB; those prices assume a two-year carrier contract. Minus a contract, or sold "unlocked," the lower-end iPhone 5C will cost approximately $550, while the 32GB will run $650.

Those prices were considerably higher than most analysts' expectations. They had assumed Apple would sell the iPhone 5C at dramatically lower prices -- the lowest estimates were around $300 unsubsidized by a contract -- to battle even cheaper Android smartphones in major markets like China and India, where the Google mobile OS has been trumping iOS in sales volume and market share.

Turned out Apple didn't want to play that game.

"So, optimisation of the existing strategy. Not a new pricing strategy," tweeted Benedict Evans, an analyst with U.K.-based Ender Analysis.

"Apple isn't interested in giving away its technology," said Carolina Milanesi of Gartner in an interview. "They are staying true to their core [on the 5C and its pricing] "Maybe we will see another, less expensive device later, but clearly Apple felt it wasn't the right time to do that."

The five colors of the new iPhone 5C are seen on screen at Apple's media event in Cupertino, Calif. (Photo: Stephen Lam/Reuters)

In Apple's pricing structure, the 5C substitutes for the iPhone 5, which if the firm had fallen back on last year's model, would have been priced at $99 with a two-year contract, or $550 without.

Of course, it is a new iPhone, not last year's, which is what Apple has been selling at that price. Milanesi was convinced that would boost sales, but wasn't ready to predict by how much. "I do think that [the newness] makes a difference," she said. "Here you have the colors, so it becomes more about the variety. I think this was a smart move as well."

Milanesi characterized Apple's iPhone 5C pricing and specification decisions as resulting in higher-than-anticipated prices, but with hardware that was better than expected.

Still, some were clearly disappointed in Apple's refusal to go lower.

"This won't move the needle in emerging markets," said Gottheil, one of a crowd of analysts who had bet Apple would be more interested in gaining back some market share than in high profit margins. "It appears they were afraid lower prices would cannibalize the iPhone 5S in the subsidized markets."

Philip Schiller, head of Apple marketing, took the stage to introduce both the iPhone 5C and the 5S, the latter the company's newest flagship. "It's the most forward-thinking phone we've ever created," said Schiller of the iPhone 5S. "It's the most forward-thinking phone anyone's ever made."

As expected, Apple stuck with the "S" designation for the follow-up to 2012's iPhone 5, which sported a new design.

On the outside, the iPhone 5S looks almost identical to the iPhone 5, although it comes in a new gold-tinted "champagne" color as well as something Schiller called "space gray."

Inside, the iPhone 5S relies on an Apple-designed A7 chip, Apple's first 64-bit processor, that Schiller said was twice as fast as the A6 in last year's phone, and with double the graphics performance. As has been its habit, Apple did not reveal the A7's clock speed or the number of cores it contains. The iPhone 5S also has a longer-lasting battery that will run 10 hours of LTE talk time, Wi-Fi browsing or video play, and up to 40 hours of music.

Phil Schiller, Apple senior vice president of worldwide marketing, reveals the iPhone 5S Touch ID fingerprint recognition feature. (Photo: Stephen Lam/Reuters)

A new motion processor, dubbed the M7, is also tucked inside the iPhone 5S and continuously measures motion data generated by the built-in accelerometer, gyroscope and compass. Schiller said it and the new CoreMotion API in iOS 7 would kick start a new wave of health and fitness apps.

Milanesi and Gottheil saw the motion processor as the foundation for more ambitious moves in wearable computing, the category that pundits have predicted will eventually result in an "iWatch" device worn on the wrist.

"Absolutely," said Milanesi when asked if the 5S's motion processor was a precursor to bigger things. "It's clear that they are working on something, but haven't figured it out yet. In the meantime, they're giving you something you can use now. More importantly, they'll learn what users want and what kind of apps can be developed [for wearables]."

Another new feature of the iPhone 5S trumpeted by Schiller was the long-rumored fingerprint scanner. Dubbed Touch ID, it's based on a capacitor built into the Home button on the bottom front of the iPhone 5S. "Touch ID reads your fingerprint at an incredibly detailed level," Schiller claimed.

Apple said Touch ID would be used to unlock an owner's iPhone, as well as for authenticating iTunes purchases without a password. The fingerprint data will be encrypted and locked inside the phone's A7 SoC, not stored on Apple's servers or backed up to its iCloud sync service.

The iPhone 5S will also go on sale Sept. 20 in Apple's retail stores. The first wave of markets -- the U.S., Australia, Canada, China, France, Germany, Japan, Singapore and the U.K. -- will be followed by enough others to reach 100 countries by December, Cook said. Carrier partners and some authorized resellers will also begin selling it Sept. 20, as well.

Online and phone pre-orders (for the iPhone 5C only) will start three days from now, on Friday, Sept. 13.

The iPhone 5S will be priced in the U.S. at $199 for a 16GB model, $299 for 32GB, and $399 for 64GB of storage space, the now-standard prices; all assume a two-year contract with a carrier.

During today's event, Craig Federighi, who heads all OS development at Apple after the company pushed out Scott Forstall last year, demonstrated several of the 200-some new features of iOS 7, which will power the iPhone 5S and 5C, including improved search, a single-swipe to bring up the control panel, and tweaks to the Siri digital assistant.

The first radical overhaul of Apple's mobile operating system since its inception, iOS 7 features a "flatter" design with fewer three-dimensional cues, and a complete or partial elimination of "skeuomorphic" embellishments, like the wooden bookshelves in iBooks and the lined paper in Notes.

The free iOS 7 upgrade -- which will be available to owners of iPhone 4 and later, the iPad 2 and later, and the fifth-generation iPod Touch -- will debut Sept 18, two days before the iPhone 5S and 5C reach retail and customers who pre-order.

Cook also spent a few minutes announcing that all new iOS buyers will be able to download free copies of the iPhone and iPad versions of Apple's iWork suite. The three apps -- Pages, Numbers and Keynote -- have been priced at $9.99 each.

The give-away followed an announcement this summer that Apple had created online editions of those apps, called iWork for iCloud, to compete more effectively with Google and Microsoft in the mobile productivity market.

Gottheil assumed that the freeing of the iOS apps meant that iWork for iCloud will also be offered gratis to customers. Currently, iWork for iCloud is in beta, although anyone with an iCloud account may try them out.

But for all the interesting additions to the flagship -- and the pricing of the 5C -- Apple failed to really come up with a "wow" moment, a problem critics have used to claim that the company has lost its innovation edge. "They took the 5S in reasonable directions," said Gottheil, sounding less than enthusiastic about the overall presentation.

Milanesi felt the same way during the event, but on reflection, she changed her mind. "Apple has added stuff that is difficult to articulate, but once you look at it, there's a lot here, even though there's not a 'Wow' thing. Apple's not taken the easy road."

Phil Schiller, Apple's senior vice president of worldwide marketing, explains pricing for the iPhone 5C. (Photo: Stephen Lam/Reuters)

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is

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