Why Apple raised the price of the iPhone, but not in the US and China

Why Apple raised the price of the iPhone, but not in the US and China

Customer inspects the iPhone 14 Pro Max inside an Apple store in Marunouchi, Tokyo.

Stanislav Kogiku | SOPA images | Light Rocket | fake images

AppleThe newer iPhones, the 14 series models, come with better screens, cameras and satellite messaging, among other features and updates. But depending on where you live, they may also command a higher price.

While some analysts projected that Apple could increase the price of its latest iPhones across the board due to ongoing supply chain challenges and inflation, potential buyers in the US and China saw no increases compared to older models. from series 13.

But for consumers in markets like the UK, Japan, Germany and Australia, the newer models also came with significant price increases.

For example, the base model iPhone 14 starts at $799 in the US, the same price the company charged for the iPhone 13 at launch last year.

In the UK, the base iPhone 14 costs £849, or roughly $975. The base iPhone 13 was priced at £779, up from £70 or about $80.

That price difference only increases with the more improved models. For example, the iPhone 14 Pro Max in the UK costs £150 more than the equivalent model from last year.

The reason Apple took the step of raising the price of phones in those markets has to do with currency fluctuations.

“Essentially every currency in the world has weakened against the dollar,” Apple Chief Financial Officer Luca Maestri said on the company’s fourth-quarter earnings call with analysts last week. “The strong dollar makes it difficult in a number of areas. Obviously our pricing in emerging markets makes it difficult, and the translation of those revenues into dollars suffers.”

While Apple reported that its revenue rose 8% in the quarter to $90.15 billion, Apple CEO Tim Cook he told CNBC last week that the company would have grown “double digits” were it not for the strength of the dollar.

“Exchange rate headwinds topped 600 basis points for the quarter,” Cook told CNBC’s Steve Kovach. “So it was significant. We would have grown in double digits without currency headwinds.”

The exchange rate is “a very important factor that is affecting our results, both revenues and gross margin,” Maestri said. Apple hedges against its currency exposures “in as many places as possible around the world,” he said, but those kinds of hedges are beginning to erode as the company needs to continue buying new contracts.

But Apple also examines the currency landscape when it launches new products, Maestri said, which led to these most recent price increases.

“In some cases, for example, customers in international markets had to … see some price increases when we launched the new products, which is not something that, for example, US customers have seen,” he said. “And that’s sadly the situation we’re in right now with the strong dollar.”

While recent currency fluctuations against the US dollar are causing some international buyers to pay more for an iPhone, there have been cases where Apple has absorbed those costs.

In 2019, when the US dollar also saw an increase in value compared to other currencies, Apple adjusted foreign prices in some markets and reset them to be close to or the same as in local currencies the previous year.

However, the reason Apple did that was due to a decline in sales as a result of the price increase. For example, in Turkey, where the local lira had fallen 33% against the dollar in 2019, Apple’s sales fell by $700 million.

“We have decided to return to [iPhone prices] more in line with what our local prices were a year ago, hoping to help sales in those areas,” Cook said. he told Reuters in an interview at the time.

But in 2022, Apple says it hasn’t seen any drop in demand in those markets. Maestri noted that he saw double-digit growth in India, Indonesia, Mexico, Vietnam and other countries, even in their respective reported currencies.

“It’s important for us to look at how these markets work in local currency because it really gives us a good idea of ​​customer response to our products, engagement with our ecosystem and overall brand strength,” Maestri said. on the earnings call. “And I have to say, in that sense, we feel very, very good about the progress that we’re making in many markets around the world.”

The US dollar has also risen steadily against the Chinese yuan over the six months, but there have been some signs that demand for Apple’s new iPhones in the country may be weakening. While Maestri said Apple saw new records in the September quarter in Greater China, a Jeffries recent report said that China sales of the four new iPhone 14 models during their first 38 days of sale were down 28% compared to iPhone 13 models during the same time period.

here are some other price comparisons of the base model of iPhone between the 14 and 13 series:

Australia:

  • iPhone 13: 1,349 Australian dollars
  • iPhone 14: 1,399 Australian dollars

Japan:

  • iPhone 13: 98,800 Japanese yen
  • iPhone 14: 119,800 Japanese yen

Germany:

  • iPhone 13: 899 euros
  • iPhone 14: 999 euros

Companies feel the impact of a strong dollar

Apple isn’t the only company acknowledging the impact currency headwinds are having on its pricing and trading decisions.

mcdonald’s reported that the currency dragged down its revenue by 7 percentage points, which explains the 5% year-over-year decline in sales, which would have increased 2% without the currency impact. With 60% of its sales coming from outside the US, “Obviously we’re translating those sales into fewer US dollars,” Chief Financial Officer Ian Borden said on the company’s earnings call last week.

A P&G, the currency hit continues to grow. The consumer products company reported a 6% decline in net sales due to “unfavorable foreign exchange,” which followed negative currency impacts of 3% and 4% in each of its previous two quarters. The company had to raise its forecast for the foreign exchange impact this year to $1.3 billion, with CFO Andre Schulten saying on the company’s earnings call last week: “The exchange rate has continued to their strong move against us.

James Quincey, CEO of Coke, which makes about 80% of its profits outside the US, said the dollar has been a high-single-digit headwind this year. “There’s bound to be a big headwind like that next year,” Quincey said on CNBC’s “Squawk on the Street” last week.

Coca-Cola, like Apple, has sought to offset some of the currency headwinds by raising prices, something it said it hopes to continue doing as the US dollar shows little sign of decline. “We expect prices to be above normal next year on top of what happened this year,” Quincey said.

So far, Coca-Cola has not reported that demand has dropped as a result of higher prices, but Quincey did say there are some potential consumer concerns on the horizon.

“We see that our consumers are beginning to respond in the traditional way that they would in a recession; holding back on discretionary and high-priced discretionary items and perhaps going to more private label or dollar discount channels,” Quincey said, noting “some effects of the reduction of purchasing power in the market”.

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