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

applesThe latest iPhones, a series of 14 models, come with better displays, cameras, and satellite messaging, among other features and updates. But depending on where you live, they can also have a higher price tag.

Although some analysts predicted that Apple could raise the price of the latest iPhones across the board due to supply chain challenges and inflation, potential buyers in the US and China did not see an increase compared to the series of 13 models.

But for customers in markets like the UK, Japan, Germany, and Australia, the latest model also comes with a significant price increase.

For example, the base model of the iPhone 14 starts at $799 in the US, the same price the company charged for the iPhone 13 when it was released last year.

In the UK, the base iPhone 14 costs £849, or roughly $975. The base iPhone 13 is priced at £779, an increase of £70 or roughly $80.

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

The reason Apple is taking steps to increase the phone’s price in those markets has to do with currency fluctuations.

“Essentially every currency around the world has weakened against the dollar,” said Apple CFO Luca Maestri in the company’s fourth quarter earnings call with analysts last week. “The strong dollar makes it difficult in a number of areas. Obviously, our prices in emerging markets make it difficult, and the translation of income back to the dollar is affected.”

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

“The foreign exchange headwinds were over 600 basis points for the quarter,” Cook told CNBC’s Steve Kovach. “So that’s significant. We would have grown in double digits without foreign exchange headwinds.”

Foreign currency exchange is “a very important factor that affects our results, both revenue and gross margin,” Maestri said. Apple hedges against its currency exposure “in as many places around the world,” he said, but that type of protection is beginning to wane as the company must continue to buy new contracts.

But Apple also examines the foreign exchange landscape when launching new products, Maestri said, which led to this latest price increase.

“In some cases, for example, customers in the international market should … they see some price increases when we open new products, which is not something that, for example, US customers have seen,” he said. “And that’s unfortunately the situation we’re in now with the strong dollar.”

While the recent currency fluctuations versus the US dollar caused some international buyers to pay more for an iPhone, there have been instances where Apple even absorbed their costs.

In 2019, when the US dollar also saw a rise in value compared to other currencies, Apple adjusted foreign prices in some markets and reset them to near or equal to those in local currencies a year earlier.

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

“We have decided to go back [iPhone prices] more in line with our local prices a year ago, with the hope of helping sales in the region,” Cook told Reuters in an interview at the time.

But in 2022, Apple says it doesn’t see a drop in demand in that market. Maestri said 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 see how this market is performing in local currency because it really gives us a good sense of customer response to our product, engagement with our ecosystem, and overall, the strength of the brand,” Maestri said. on the earnings call. “And I have to say, in that regard, we feel very, very good about the progress we’re making in many markets around the world.”

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

Here are some basic iPhone model price comparisons between the 14 and 13 series:

Apple is not the only company that recognizes the impact that currency has on business decisions and pricing.

McDonald’s reported that the currency dragged down its revenue by 7 percentage points, accounting for a 5% decrease year-over-year in sales – which would have increased by 2% without the impact of the currency. With 60% of its sales coming from outside the US, “Obviously, we’re translating those sales back into less US dollars,” said CFO Ian Borden on the company’s earnings call last week.

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

James Quincey, CEO Coca Cola, which makes about 80% of its earnings outside the US, said the dollar has a high single-digit headwind this year. “It’s likely to be as big a windfall as next year,” Quincey said on CNBC’s “Squawk on the Street” last week.

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

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

“We’re seeing our consumers start to respond in the traditional way they do in a recession; slowing down discretionary and high-ticket items and maybe going to more private label or discount dollar channels,” Quincey said, noting “some of the effects of the reduction. purchasing power is out there in the market “.