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Wed 29 Jan 2014 11:54 AM

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Apple needs "a cheaper iPhone"

Analysts say phonemaker must compete with low-cost rivals

Apple needs "a cheaper iPhone"
Apple CEO Tim Cook speaks about the new iPhone during an Apple product announcement at the Apple campus on September 10, 2013 in Cupertino, California. The company launched two new iPhone models that will run iOS 7. The 5C is made from a hard-coated polycarbonate and comes in five colors. The 5S comes in three colors, features a fingerprint sensor, has an upgraded camera, and contains an A7 chip. (Getty Images)

Apple needs a cheaper iPhone to keep pace with low-cost rivals, analysts said, after the company's smartphone sales fell short of lofty expectations in the holiday shopping season.

Shares of the world's most valuable technology company opened down 8 percent on Tuesday, a day after Apple's weak revenue forecast for the current quarter renewed fears about Chinese smartphone demand and a tepid global market.

The record 51m iPhones sold by Apple in the quarter ended December 28 fell short of the 55m expected by Wall Street.

On Tuesday, analysts attributed some of this shortfall to the pricing of the iPhone 5C. Apple's low-cost alternative to its iPhone 5S was unable to grab market share from cheaper rivals using Google's Android software, they said.

"We don't think Apple has created a meaningful new product category with the iPhone 5C," BMO Capital Markets analyst Keith Bachman wrote in a report.

He said Apple should create a "more impactful medium-price iPhone", with a lower price tag than the iPhone 5C launched in September.

The iPhone 5C sells for $549 without a two-year contract with a telecom carrier. Samsung Electronics' flagship Galaxy S4 now sells for $530 without a contract in the US, while Google Nexus 5 sells for $350.

Analysts said they were looking to the launch of the iPhone 6, a mid-range smartphone, and wearable devices such as iWatch in the second half of the year to boost investor confidence.

Apple maintained its gross profit margin of 37.9 percent for the quarter just ended, as more people opted for the high-margin iPhone 5S than the 5C.

But rival Samsung, which has a phone for every budget, widened its lead over Apple by cornering 29.6 percent of the global smartphone market in the fourth quarter of 2013, ahead of Apple's 17.6 percent, data from research firm Strategy Analytics showed.

Credit Suisse analysts said that, by ignoring the mid-tier smartphone segment, Apple would continue to cede incremental share to Android.

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