Apple Slashes iPhone 5c Production

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Apple has asked Pegatron and Hon Hai to slow down their production of the iPhone 5c. Apple revised its orders from Pegatron downward by 20% and revised its orders from Hon Hai downward by one-third. The reduction suggests that the iPhone 5c may not be selling as well as Apple had forecast.

The information comes from unnamed supply chain sources cited by Reuters and The Wall Street Journal. Apple has not confirmed the details, but the order reduction gels with recent reports that the iPhone 5s is outselling the 5c by a factor of two to one.

Earlier this week, Consumer Intelligence Research Partners (CIRP) data indicated that Apple's iPhone 5s accounted for 64% of total iPhone sales at the end of September. The iPhone 5c accounted for 27% of sales, and the iPhone 4S comprised 9% of sales. In other words, the 5s is outselling the 5c by a significant margin. When purchased on contract, the least expensive iPhone 5s retails for $199, the 5c for $99 and the 4S is now free.

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Some are calling into question Apple's pricing strategy for the iPhone 5c. The iPhone 5c is essentially a repackaged version of last year's iPhone 5. It sheds the aluminum exterior for one made of polycarbonate. The 5c may cost Apple a bit less to manufacture than the high-end iPhone 5s, but the pricing differential is not enough.

Without a contract, the iPhone 5c starts at $549 -- certainly not a "low-cost" device -- while the 5s starts at $649. With only $100 separating the two, many consumers are opting for the high-end model. Initially, the 5c was expected to serve as an entry-level iPhone at a lower point of entry for emerging markets. That's not how it shaped up. In large markets such as China and India, the $549 iPhone 5c can't compete with entry-level Android phones that cost $200 or less.

The 5c, which is readily available from Apple, has already been discounted by $50 by U.S. retailers such as Walmart and Target. Discounts so early in a device's life generally point to weak demand.

However, Pegatron and Hon Hai are not Apple's only manufacturing partners. It's also useless to speculate about how much iPhone 5c stock Apple already has on hand. Last month, Apple said it moved 9 million iPhones in just four days, but it didn't provide a breakdown of how many were 5s and how many were 5c models. Further, analysts still predict that Apple will sell 23 million 5c devices during the fourth quarter of the year and another 10 million during the first quarter of next year.