Apple may increase the price of iPhone 14

The last time Apple faced inflation as high as it is today was less than a year after its IPO, the best-selling product was the Apple II computer.

In May, inflation in the US was 8.6%, the highest level since 1981. Other major markets also recorded similar or even higher inflation. Apple also faces rising costs from global logistics companies and employee salaries, as well as reduced purchasing power that leads to the possibility of customers not upgrading their iPhones. Supply chain bottlenecks related to the Covid-19 blockade in China could cause “Apples” to lose $ 8 billion in revenue.

In this situation, many businesses will pass on additional costs to customers by raising prices, especially if demand is strong. Apple has yet to raise iPhone prices in the US but regularly adjusts it in other countries to deal with currency rates. For several years, Apple changed its pricing structure for products that launched in the fall.

Apple CEO Tim Cook acknowledged that his company is also under pressure from inflation, which is reflected in profit margins in the first and second quarters.

Cost increase

According to Mr. Cook, inflation appears in at least two categories on the balance sheet: gross profit margin and operating expenses. Apple’s first-quarter gross profit margin was 43.7%, higher than investors’ expectations but down slightly from the fourth quarter of 2021. According to Apple CFO Luca Maestri, the second-quarter figure could be even lower, between 42% and 43%.

Apple CEO does not rule out the possibility of increasing iPhone prices this year. (Image: Getty Images)

Operating expenses last quarter were $12.58 billion, up nearly 19 percent from the same period in 2021. In the second quarter, Apple predicts costs will increase to about $12.8 billion. Freight rates contributed largely to this increase. Another factor is related to the semiconductor shortage due to the Covid-19 blockade in China in the first half of this year and the general shortage of chips to complete products. One bright spot, though, according to Cook, is that some components are starting to get cheaper.

Apple could also face rising labor costs. The company will raise wages for office and retail workers after rivals like Google, Amazon and Microsoft do the same to attract and retain talent.

Reduced purchasing power

Rising costs aren’t Apple’s worst-case scenario. The biggest risk is inflation and other macro factors affecting the demand for the company’s products. Traditionally, during a recession or a decline in purchasing power, consumers will delay purchasing long-lived goods such as electronics.

In Apple’s case, that means those who bought a phone a year or two ago may not be able to upgrade to this year’s newest model, saving money until the economy is better. Investors are quite reassured because Apple owns a loyal user base, regularly upgrading products. However, when inflation takes hold, this advantage may no longer exist.

So far, Apple has not shown any signs of slowing down in demand. In April, the company said demand remained high, the bigger issue was whether there was enough supply to meet demand. However, somewhere in the laptop and computer market, there are signs of a lack of breath. Global smartphone sales began to decline. Micron Technology, Apple’s memory supplier, warned that smartphone and PC shipments will fall significantly below estimates as customer demand declines due to inflation around the world.

However, Apple still has hope in rich customers. In the “ultra-premium” segment, which includes phones over $1,000, the company accounted for 66% market share in the first quarter, according to Counterpoint. As inflation increases, the mid-range and low-end segments will be hit harder, Counterpoint researchers said.

A Morgan Stanley survey from June showed that 70% of US consumers plan to cut spending in the next 6 months because of inflation. But rich households – or Apple customers – have a more positive outlook on the economic outlook.

Over the past five years, Apple has raised iPhone prices several times. In 2017, “apple defect” first introduced the $ 1,000 iPhone. The company quietly increased the iPhone starting price in 2020, from $699 to $799. Most recently, in Japan, the price of iPhone 13 increased by about 20%, the cheapest from 870 USD.

Will Apple raise iPhone prices again this year? CEO Tim Cook does not rule out this possibility.

Du Lam (According to CNBC)


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