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

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Customer inspects iPhone 14 Pro Max at an Apple Store in Marunouchi, Tokyo.

Stanislav Kogiku | SOPA images | Light rocket | Getty Images

AppleThe latest iPhones, the Series 14 models, come with better displays, cameras, and satellite messaging, among other features and updates. But depending on where you live, they may also come with a higher price tag.

While some analysts predicted 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 the Series 13 models.

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

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

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

That price difference only gets bigger with the more improved models. For example, the iPhone 14 Pro Max in the UK is £150 more expensive than the equivalent of last year’s model.

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

“Essentially every currency around the world has weakened against the dollar,” Apple CFO Luca Maestri said during the company’s fourth-quarter earnings call with analysts last week. “The strong dollar is making it difficult in a number of areas. It’s clear that our pricing in emerging markets is making it difficult, and the translation of that revenue to dollars is affected.”

While Apple reported its revenue rose 8% in the quarter to $90.15 billion, Apple CEO Tim Cook told CNBC last week that the company would have grown “double-digit” had it not been for the strong dollar.

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

Foreign currency exchange is “a very important factor influencing our results, both revenue and gross margin,” Maestri said. Apple does hedge its currency risks “in as many places as possible around the world,” he said, but that kind of protection is beginning to wear off as the company continues to buy new contracts.

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

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

While recent currency movements against the US dollar are causing some international buyers to pay more for an iPhone, there have been instances where Apple has included those charges instead.

In 2019, when the US dollar also appreciated compared to other currencies, Apple adjusted foreign prices in some markets, returning them to near or the same as in local currencies a year earlier.

However, the reason Apple did that was a drop in sales due to the price hike. For example, in Turkey, where the local lira fell 33% against the dollar in 2019, Apple’s revenue fell by $700 million.

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

But in 2022, Apple says demand in those markets has not slowed down. Maestri noted that it 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 are performing 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,” says Maestri. on the call for profit. “And I have to say, in that regard, we feel really, really good about the progress we’re making in many markets around the world.”

The US dollar has also steadily appreciated against the Chinese yuan over the past six months, but there are some signs that demand for the new Apple iPhones could decline in the country. While Maestri said Apple saw new September quarterly records in Greater China, a recent report from Jeffries said sales of the four new iPhone 14 models in China fell by 28% in the first 38 days they were sold compared to the iPhone 13 models over the same period.

Here are some other price comparisons of the base iPhone model 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 impact of strong dollar

Apple isn’t the only company to recognize the impact currency headwinds have on its business and pricing decisions.

McDonald’s reported that currency dragged its revenues by 7 percentage points, accounting for the 5% year-over-year decline in sales — which would have risen 2% without the currency impact. Since 60% of sales come from outside the US, “naturally, we translate that revenue back into fewer US dollars,” CFO Ian Borden said during the company’s earnings call last week.

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

James Quincey, CEO of Coca Cola, which makes about 80% of its profits outside the US, said the dollar has had a high single-digit headwind this year. “Next year it’s probably going to be such a big headwind,” Quincey said on CNBC’s “Squawk on the Street” last week.

Coca-Cola, like Apple, has tried to offset some of the currency’s headwinds by raising prices, something it expects to continue doing as the US dollar shows little sign of declining. “We expect prices to be higher than normal next year, on top of what has happened this year,” said Quincey.

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

“We’re seeing our consumers start responding in a traditional way that they would in a recession: delaying discretionary and high-ticket discretionary items and maybe moving to more private label or low-cost dollar channels,” Quincey said, noting “some effects of reducing purchasing power that is in the market.”



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