Walmart Cuts iPhone Prices -- Is Demand Falling?

Consumer Electronics

Published: June 27, 2014 6:35 am

Wal-Mart Stores Inc. (NYSE: WMT) has unexpectedly slashed what it charges for Apple Inc.’s (NASDAQ: AAPL) iPhone 5 models. While some media speculate this means the iPhone 6 is on its way, there is another alternative. iPhone 5 demand has dropped sharply and only discounts can drive sales back up.

CNET reported that the price of the iPhone 5c 16GB has been dropped from $49 to $29. The price of the iPhone 5s 16GB is down from $149 to $99. As is always the case with these sharp discounts, they come with two-year subscription plans, in this case from AT&T Inc. (NYSE T), Verizon Communications Inc. (NYSE: VZ) and Sprint Corp. (NYSE: S).

The iPhone 6 is expected to be priced higher than the iPhone 5. Depending on the model, that could put it as high as $499. Apple apparently will release versions with a 4.7-inch and a 5.5-inch screen. If Apple believes demand will be exceptional, it may even price the 5.5-inch one higher.

The argument that favors Apple as Walmart drops the price is that the decision is a sort of inventory control. Best to clear out stocks of iPhone 5 models to make room for the iPhone 6. That assumes most customers will pay more for the new model and the demand for the old one will fall, even at discount prices. If that is the case, the balancing act will be difficult. Some analysts believe the iPhone 6 will not be much of a leap forward. People may hold off and save their money for an iWatch or a new product from Samsung.

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Apple has always depended on remarkably high sales for each new generation of the iPhone. At some point, that will no longer be the case. Apple has to hope the cycle will be broken well into the future. If not, the markets — and investors — will see a repeat of the kind of momentum the company lost after the death of Steve Jobs.

Walmart management could believe that it is best off to accelerate iPhone 5 sales, but not because the iPhone 6 may be a success. The world’s largest retailer simply may look at it as a way to create brisk demand for a smartphone family with is best days behind it.

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