Apple's new iPhones take aim at competition

Apple unveiled two new versions of its flagship iPhone on Tuesday, including a lower-cost smartphone aimed at price-conscious customers in fast growing overseas markets.

Six years after it entered the smartphone market, Apple is shifting strategies to appeal to a more fragmented audience and threats from low-cost competitors. With the introduction of the cheaper phone, the iPhone 5C, Apple is targeting a younger, less-affluent audience. It is also offering a traditional upgrade, the high-end iPhone 5S, for its core audience of gadget lovers.

The entire smartphone industry is grasping at ways to lure buyers for their most expensive — and most profitable — models as U.S. and Western European markets become saturated with established smartphone owners.

"It's not a growth market as it was five years ago," said Gartner analyst Carolina Milanesi.

In key markets, Apple, which traditionally releases one premium smartphone model per year, has been losing market share to low-cost smartphone makers such as ZTE, Lenovo and Xiaomi. Estimates from Gartner showed that, in the most recent quarter, Samsung picked up 31.7 percent of the global market compared with Apple's 14.2 percent.

The iPhone 5C will come in several new colors, including yellow, blue and pink, which should appeal to younger buyers. It will start at $99 on a two-year contract — the same price point that Apple used to offer for its older phones.

But Apple's downmarket strategy comes with risks. By offering a lower-cost version of the iPhone, Apple could cheapen its brand or cannibalize demand for its more expensive model, analysts have said.

In this case, the iPhone 5C may not be cheap enough to attract true bargain hunters. In many overseas markets, wireless providers do not subsidize the cost of the phone, which will retail at $549.

Still, because the phone, which is made of plastic rather than glass and aluminum, is cheaper to make, Apple should be able to boost its profit margin, Milanesi said.

"It's more about margins and longevity than uplifting their place in the market," she said.

As for the iPhone 5S, which will start at a contract price of $199, Apple is offering several upgrades from its previous model, including a new gold color. That phone comes with a chip that measures motion and environmental information, which Apple is using for health and fitness apps.

It also includes a new fingerprint sensor known as "Touch ID." Users will be able to teach the iPhone to recognize fingerprints and even use that information to authenticate App Store purchases. Apple is marketing the fingerprint technology as a step forward in security — an attribute that could help it appeal to business consumers.

But it's unclear whether the fingerprint sensor is any more secure than a four-digit PIN number, said Scott Matsumoto, a principal consultant for the software security firm, Cigital. "It just substitutes one thing for another," he said.

The new technology could also raise privacy concerns. Apple has said that it won't store fingerprint data on its servers — only on the devices themselves. But consumers may still want to think carefully before allowing their phone, and Apple's App Store, to gain access to such unique identifying information, said Jeff Chester of the Center for Digital Democracy.

"Apple's new product should spark a much-needed debate on how much personal information has to be collected from us and the need for comprehensive privacy legislation," he said.

The new phones were announced Tuesday afternoon at an Apple event in California. They will be available for sale Sept. 20 in more than 100 countries and on 270 carriers — including in the all-important China.

Following Apple's announcement, company shares dipped nearly 3 percent. It closed down about 2 percent at $494.64 per share.

CREDIT: Washington Post graphic by Tobey)