Nobody failed to see the elephant in the room.
FORTUNE — In most regards, Apple’s AAPL iPhone special event Tuesday “met expectations,” to use a phrase that appeared in a lot of analyst’s reports.
The big surprise was the unsubsidized price of the iPhone 5C.
Most analysts expected a “cheaper” iPhone priced for sale in China and other developing markets. So did 9 out of 10 investors in our online reader poll. The two most popular price points in their voting: $399 (27%) and $299 (22%).
The actual unsubsidized price (the price carriers pay Apple): $549 in the U.S. and even higher in key emerging markets thanks to import taxes.
Below: Excerpts from the analysts’ notes we’ve seen so far. We’ll put new ones on top as they come in.
Toni Sacconaghi, Bernstein. “We worry that Apple’s inability/unwillingness to come out with a low priced offering for emerging markets nearly ensures that the company will continue to be an overall share loser in the smartphone market until it chooses to address the low end… In essence, Apple continues to risk being relegated to a high-end niche player, akin to its role in the PC market – a real shame, given its pronounced first mover advantage in smartphones. Additionally, high end smartphones are expected to have limited unit growth going forward, making iPhone (and overall Apple) revenue growth challenging. Finally we note that most first time buyers of sub-$300 smartphones are purchasing Android phones, meaning that it will be increasingly difficult for Apple to migrate those users from the Android ecosystem at a later date than if Apple could have attracted those same users to iOS in the first place.” Price target: $600. Outperform.
Bill Shope, Goldman Sachs: Solid product enhancements; disappointing 5c pricing. “Apple hosted its iPhone special event at its headquarters in Cupertino where it introduced the new iPhone 5c and 5s. Although the press had leaked most of the new specs, among the positive surprises at the event were the announcements that China would be among the first group of countries to offer the new devices and the addition of NTT DOCOMO as a carrier in Japan… Nevertheless, pricing for the 5c was a key disappointment and is likely to remain an overhang until details on post- paid pricing in emerging markets emerge in coming days and weeks. In addition, as of the time of this note, we had not received confirmation that China Mobile was added as a new carrier for the iPhone; if this announcement does not come in short order, it will also limit the unit upside we had anticipated.” $530. Buy.
Stuart Jeffrey, Nomura: “High Pricing Supports Margins but Apple Doesn’t Address Fundamental Challenges. “Apple retained its pricing structure with its new iPhone portfolio. In not chasing a new lower price point and through taking out some key component costs with the 5c, we believe that Apple has likely ensured stable gross margins in the next couple of quarters… The lowest iPhone price point remains at $450, meaning that Apple has not expanded its addressable market by targeting more price sensitive market segments. This may have no near-term implications, but we continue to believe that the longer Apple waits to enter the $300 segment and below, the harder it will be to compete with Android’s dominance… Apple shed no new light on its plans for emerging markets, for larger screen size, for new product categories, for new services, and arguably undermined our confidence in its ability to monetize software and service revenues and in its ability to quickly react to changing end-market trends. 2014 could yet turn out to be a great year for Apple, but there was nothing concrete to point to emerging from yesterday’s presentation. $480. Neutral.
Timothy Arcuri, Cowen: Choosing Profits Over Share. “The first true launch of the Tim Cook era had all the hallmarks of a manufacturing, operations and supply chain expert. The “low-end” 5C was nowhere to be found; in its place debuted a more colorful costed-down version of the iPhone 5 masquerading as a new phone w/ better battery life and some innovative new manufacturing elements. Given 5C’s $549 unsubsidized US price (~$733 in China), this is nobody’s low margin phone and, together w/ new relationships at NTT DoCoMo (announced) and China Mobile, supports our thesis since assuming coverage that 2014 Street estimates look too low. Additionally, the 5S at the high- end includes some key new technologies (64-bit processor + fingerprint) that could provide a solid segue into some new markets like enterprise, TV, and gaming. $550. Outperform.
Ittai Kidron, Oppenheimer: Faster and Better, but No Surprises. “The A6 powered 4G-LTE 5C effectively replaces the 5 and comes with a 4″ display and 8MP camera among other features (and in 5 colors). Priced at $99/$199 (16GB/32GB) w/contract it’s a strong mid-tier choice, but at $549/$649 w/o contract it’s largely a high-end phone and not a huge expansion catalyst… The 5C is a strong phone, which could keep pressure on mix and ASPs in mature markets longer term. We won’t get a good read on the full impact to ASPs and margins until the March quarter, as we’d expect most pent- up demand (realized in December) to be high-end 5S driven.” $540. Outperform.
Kulbinder Garcha , Credit Suisse: So much for the low end… “In aggregate, we remain disappointed with Apple’s decision to remain a premium priced smartphone vendor, and this continues to competitively expose the company and limits its TAM and growth… Apple’s iPhone portfolio, for the next 12 months, by our estimates, will remain significantly in the >$400 smartphone segment, not incrementally different from recent years. This segment has seen peaked growth – with 300mn units sold per year and only modest expansion. In this low growth segment, Apple faces strong competition from Samsung, which holds the other 50% of category market share. Critically, by ignoring the mid-tier smartphone segment, Apple will continue to lose users to the Android ecosystem. On our new estimates, Apple’s smartphone share will decline to 15.5%/13.1% this year and next from 18.1% last year.” Price target: $525. Downgrading to Neutral from Outperform.
Katy Huberty, Morgan Stanley: New iPhones Signal In-Line Units, Better ASP/Margins. “We walk away from Apple’s iPhone launch event with the view that estimates are likely to trend higher… iPhone 5c [was] priced higher than expected, which may limit unit upside but alleviates margin concerns and puts upward pressure on ASPs. Net, EPS estimates are likely to drift higher, especially if the potential China Mobile deal hits before year-end, pulling along the stock price, in our view.” Price target: $540. Overweight.
Scott Craig, Merrill Lynch: iPhone 5S and 5C launch a bit disappointing. “Specs for the 5C are very similar to the iPhone 5, aside from plastic casing, more colors, better front facing camera etc. However, pricing for the 5C was higher than expected at $99 (with 2 year contract) for 16Gb and $199 for 32Gb, which is similar to what Apple has done at prior product launches and likely means no lower end phone as many expected/wanted. Overall, we view the lack of a true “low end iPhone” as disappointing… We believe the 5C is unlikely to be competitive in the lower end smartphone market, where phones tend to be <$300 (prepaid phone with no contract), unless Apple is willing to give up subsidy/margin, which it doesn’t typically do.” Price target: $520. Buy.
Chris Whitmore, Deutsche Bank: Initial Thoughts. “The event was mostly in-line with expectation but the pricing of the iPhone 5C is disappointing and significantly above our expectation (DB at $400 unlocked vs. $549; or $499 wholesale). Unfortunately, the positioning of the 5C appears to place emphasis on near-term margins over volume and a more aggressive posture in the emerging market / prepaid smartphone segment. This positioning may dampen medium-term unit expectations; but support the margin outlook. On the other hand, versions of both the iPhone 5C and 5S support TD-LTE, suggesting a China Mobile deal is imminent.” $480. Buy.
Maynard Um, Wells Fargo: Delivered on expectations. “iPhone 5C maintains the base components and features of the iPhone 5 with polycarbonate, steel reinforced body. The device will sell for $99 for the entry-level 16GB model assuming a 2-year contract. We believe that the price point should attract emerging market consumers and can pave the way for AAPL’s international penetration. The 5C should have gross margin greater than the original 5 yet still have some of the commonalities to the 5S to provide economies of scale.” $525.00 to $575.00. Market weight.
Peter Misek, Jefferies: Lovely Phones but Disappointing. Everything we previewed (“Expectations for Sep 10 Event”) as “high probability” occurred, except the iPhone 5C has five colors instead of six (no black). We still expect China Mobile to happen though it was not announced today. Everything we previewed as “low probability” did not happen. The iPhone 5C’s $99 on-contract price is higher than expected and still leaves Apple with a product gap in the low-end… An off-contract price of $549 vs. our expectation of $400.” Target: $450. Hold.
Brian White, Cantor Fitzgerald: Historic iPhone Event with Two New Family Members. The price points are $99 for 16GB and $199 for a 32GB with a two-year contract. This price point is approximately $100 above our expectation, a positive for margins, in our view. The iPhone 5C will be available for pre-order on September 13 and available in 11 geographies on September 20. We expect China to be important for the iPhone 5C.” $777. Buy.
Gene Munster, Piper Jaffray: Lowering iPhone Expectations. “While overall we were wrong and disappointed with the pricing of the iPhone 5C and timing of China Mobile, we note that the theme of returning to growth in CY14 remains as we expect margins to stabilize under the new product offerings. The pricing on the 5C replaces the middle tier phone at $549 unlocked instead of acting as a low-end ~$300 phone as we had expected. Additionally, China Mobile was not announced as a new partner offering the iPhone, which we expected at the company’s China announcement last night. Since we had previously expected a true offering for the lower end market in our model, we are adjusting our expectations to remove the lower priced model with the net result being lower revenue and EPS expectations for CY14/15, but higher margins.” Target lowered to $640 from $655. Overweight.
Glen Yeung, Citi: Quick take, post release. “The 5C is essentially the 5 but with plastic casing in multiple colors—it’s really not 2 new phones. It is priced at $99 for the 16GB WITH A 2-YEAR CONTRACT, the same price the iPhone4S was lowered to last year when the iPhone 5 was released. From this, one might conclude that the 5C is a way for them to be able to discount the 5 with reduced cost. On the Apple website, the 5C is priced at $549, typical pricing from Apple but well above our prior estimate. Based on our estimated BOM cost of $240, we think the GM of the 5C is 56%, above the 4S at 30% and the 5/5S at 53%. No fingerprint reader on the 5C. Also of note, Apple announced new cases for each phone. If one were to assume Apple profits $25 per case, then the margins for the combined case and phone go up 1.5% or so… It is worth noting that the 5C supports more LTE bands than any other phone in the world, suggesting it will support TD-LTE. While China Mobile was not announced today, it will likely come in future.” $430.
Amit Daryanani, RBC: Two Phones, Neither One is ‘Cheap.’ “Overall we believe the event was in-line with expectations as we await a possible China Mobile announcement (China event today, September 11). Finally, with the pricing of the iPhone 5c at $99 for the 16GB version ($549 without contract) is much higher then most investors had expected and what AAPL likely needs to gain share in China. Positively, given the price point of iPhone 5c and the lower bill-of-material (plastic casing) gross-margin impact from the 5c maybe minimal. $525. Outperform.
Charlie Wolf, Needham: Apple unveils iPhone 5S and iPhone 5C. “The much anticipated iPhone 5C essentially incorporates the features found in iPhone 5. Apple enclosed the 5C in a high gloss plastic enclosure. The 5C sells for $100 less than the 5S under subsidized plans. In view of the relatively little attention the 5C received in today’s presentation, it’s clear that the 5C will chiefly target price sensitive users in emerging markets. However, Apple did not reveal the 5C’s price in prepaid emerging markets. The 5C’s domestic price suggests that Apple did not sacrifice much in the way of gross margins in designing it. In our view, 5C is unlikely to significantly cannibalize sales of iPhone 5S in developed, postpaid markets. But it could be a different story in prepaid markets.” $595. Buy.
Walter Piecyk, BTIG: Will Tim Cook Ever Target the Unsubsidized Prepaid Markets? “The pricing on the iPhone 5c is simply not low enough to adequately address the significant global growth opportunity that we believe exists with unsubsidized prepaid customers that have not yet bought a smartphone. To be clear, Apple never indicated that it was their intention to attack this market with the iPhone 5C and the global opportunity is still in its early stages. However, we believe Apple is foregoing a valuable and relatively easy way to return to earnings growth. The real question is whether Apple plans to ever go after these markets or rather just remain a high-end phone maker.”