Apple Unveils New IPhones at Cheaper Price

Sept. 10 (Bloomberg) -- Bloomberg's Jon Erlichman tests out Apple's new iPhone 5S and iPhone 5C on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Apple Inc. (AAPL) unveiled two new iPhones, including a cheaper $99 version in bright colors and an updated high-end device, in a strategy shift by Chief Executive Officer Tim Cook to reach a broader range of customers around the world.

A new iPhone known as the 5C will start at $99 with a two-year contract and will come in five colors, Apple said today at an event at its headquarters in Cupertino, California. The high-end iPhone 5S, which will be available in three colors including gold, will cost $199 to $399 with a contract. The phones will be available in stores Sept. 20.

“The business has become so large,” Cook said. “We’re going to replace it with not one, but two new designs.”

The product introductions underline how Apple, which was a trailblazer when it debuted the iPhone in 2007, is increasingly following the strategy of other smartphone makers that offer handsets in different colors and prices. Until now, Apple only released one new iPhone model every year. As competing devices running Google Inc.’s Android software gain in popularity in the $280 billion smartphone market, Apple is expanding its iPhone lineup to reach more customers.

“The competition has caught up and it’s now purely about how quickly it can innovate and drive its own experience forward,” said Benedict Evans, an analyst with Enders Analysis in London.

Apple also said it was adding Japan’s largest carrier, NTT DoCoMo Inc. (9437), and that it would have devices immediately available in China for the first time. The company is near a deal with China Mobile Ltd. (941), the world’s largest carrier, people familiar with the plans have said.

Stock Falls

The announcements didn’t stem a stock drop for Apple, with the company’s shares falling 2.3 percent to close at $494.64 in New York. Analysts said the event lacked surprise, given that many pictures and details about the new iPhones had leaked in the past few months.

Apple was also not as aggressive on price as some investors had hoped. “Many investors were hoping for that one single atomic event where they got aggressive on pricing,” said Gene Munster, an analyst at Piper Jaffray Cos. “Instead, in Apple’s own way they think they can accomplish their goal -- gaining market share -- without blowing up their margins.”

Nonetheless, offering iPhones at lower prices also poses risks. With a lower-priced iPhone, Apple is “walking a tightrope between growth and profitability,” said Sarah Rotman Epps, an analyst at Forrester Research.

Supply Chain

Adding new iPhone colors also complicates Apple’s supply chain by adding to the sprawl of models that consumers can choose from, said Mike Fawkes, a former supply-chain executive at Hewlett-Packard Co. “This increases their complexity a lot,” he said.

Each iPhone unveiling is critical for Apple because the handset accounts for about half its revenue. Rivals including Samsung Electronics Co. (005930) using Android software have taken market share by offering more handsets in varying styles and prices. IPhone sales trailed the overall smartphone market’s growth in the last two quarters.

The new iPhones, which are Apple’s first major product debut since the iPad mini hit stores last year, follow a tough 12 months for the company. Apart from heavy competition, Apple grappled with flawed mapping software and a management shake-up, as well as stepped-up U.S. government scrutiny of some of its business practices.

Apple Response

Apple is responding with the new iPhones, which made their debut in front of a crowd that included Apple board member and former Vice President Al Gore and Twitter Inc. co-founder Jack Dorsey. Musician Elvis Costello also played toward the end of the event.

The iPhone 5C, which has a plastic casing and a 4-inch screen, will come in blue, green, pink, yellow and white. Without a contract, the 16-gigabyte version will cost $549 and the 32-gigabyte version will cost $649, according to Apple’s online store. It can be pre-ordered starting Sept. 13.

The iPhone 5S will come in white, black and gold and has a 64-bit chip that the company said will make it work twice as fast as the iPhone 5. It will also have Touch ID fingerprint-sensor technology that is located on the phone’s Home button, which people can use to unlock their phone and confirm purchases from iTunes and Apple’s app store. Without a contract, the 5S costs $649 to $849, according to Apple’s online store.

Paying Up

The high off-contract prices indicate Apple is still betting customers will pay more for the iPhone, said Forrester’s Rotman Epps. “They aren’t trying to compete for the bottom of the market,” she said.

Apple also revamped its mobile software with the introduction of iOS 7, which will be available for free starting Sept. 18. The overhaul includes new sounds, picture-sharing features, and an iTunes radio feature.

At the event, the company said 700 million iOS devices would be sold by next month. Apple added that its Siri digital assistant is “massively improved” and now draws information from Twitter and Wikipedia, among other things.

More new Apple products are expected this year in the run-up to the holiday shopping season. The company is expected to introduce new iPads later this year, people familiar with the plans have said.

To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Peter Burrows in San Francisco at pburrows@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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Apple Senior Vice President of Software Engineering Craig Federighi speaks about iOS 7 on stage during an Apple product announcement at the Apple campus on September 10, 2013 in Cupertino, California.

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Photographer: Justin Sullivan/Getty Images

Apple Senior Vice President of Software Engineering Craig Federighi speaks about iOS 7 on stage during an Apple product announcement at the Apple campus on September 10, 2013 in Cupertino, California. Close

Apple Senior Vice President of Software Engineering Craig Federighi speaks about iOS 7 on stage during an Apple... Read More

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Attendees look at the new Apple Inc. iPhone 5C during a product announcement in Cupertino, California on Sept. 10, 2013. Close

Attendees look at the new Apple Inc. iPhone 5C during a product announcement in Cupertino, California on Sept. 10, 2013.

Photographer: David Paul Morris/Bloomberg

Singer Elvis Costello, left, and Tim Cook, chief executive officer of Apple Inc., view the new iPhone 5S during a product announcement in Cupertino, California on Sept. 10, 2013. Close

Singer Elvis Costello, left, and Tim Cook, chief executive officer of Apple Inc., view the new iPhone 5S during a... Read More

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Tim Cook, chief executive officer of Apple Inc., speaks during a product announcement in Cupertino, California on Sept. 10, 2013. Close

Tim Cook, chief executive officer of Apple Inc., speaks during a product announcement in Cupertino, California on Sept. 10, 2013.

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