Apple tiptoed down market on Tuesday, unveiling a cheaper, colorful iPhone as the technology giant tries to regain lost market share from Android , the rival mobile platform run by Silicon Valley neighbor Google.
Apple announced two new iPhones for the first time -- a high-end iPhone 5s starting at $199 and the iPhone 5c, which starts at $99 with a two-year contract.
"This allows us to serve even more customers," Apple CEO Tim Cook said during a launch event at company headquarters.
The move marks one of the most important strategy shifts by Apple since Cook took over from legendary leader Steve Jobs, analysts said after the event. Jobs passed away in 2011.
"They have saturated the high end of the smartphone market and are going lower to get a wider audience," said Brian Marshall, an analyst at ISI Group. "There's a lot of competition out there."
Apple shares fell 2.3% to $494.64 on Tuesday, partly on concern that the 5c may not be cheap enough.
Since Apple set the smartphone market on fire with the introduction of the iPhone in 2007, the company has stuck to a premium-pricing strategy, betting that cutting-edge technology would persuade consumers to pay up for the devices. But after a few years of torrid growth, cheaper phones made by Samsung, Lenovo and other Asian manufacturers -- mostly running on Android software -- began grabbing market share.
Apple is expected to see its share of U.S. smartphone users reach 38.3% this year, but Android's share will hit almost 45.9%, eMarketer estimates. In China, the most important new smartphone market, Apple recently ranked seventh in market share, behind mostly Android phone makers such as Samsung, Lenovo and Xiaomi, according to estimates by research firm Canalys.
The iPhone 5c shows that Apple is softening its stance on pricing in the hope of reviving its market share. The question is whether the change in strategy has come too late -- and whether the company can keep its juicy profit margins.
Earlier this year, Morgan Stanley analyst Katy Huberty estimated that Apple could generate $2.4 billion in extra revenue and triple its customer numbers in China if it came out with a cheaper iPhone.
But making a cheaper iPhone could dent Apple's margins, partly by eating into sales of its top-of-the-line smartphone. This has happened in the past with other formerly successful mobile handset companies, according to Jason Jones of hedge fund firm HighStep Capital. (continued...)
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