At the moment, there is a significant fluctuation in the exchange rate of the dollar in many regions. For this reason, the price of Apple’s new flagship smartphone, the iPhone 14 series is rising sharply. Despite the sharp rise in other regions, Apple is doing all it can to keep the price stable in two regions. The prices of the iPhone 14 series remain the same in China and the U.S. These are Apple’s largest markets. The Chinese smartphone market is the largest in the world. The U.S. on the other hand is the world’s third-largest market.
Apple’s new iPhone 14 series comes with better screens, cameras, and support for satellite communications, among other new features. Ahead of the launch, many analysts had expected Apple to raise prices across the board for its latest iPhones due to ongoing supply chain challenges and inflationary impacts. But in the U.S. and China, Apple’s new models haven’t risen much in price compared to the iPhone 13 series.
However, for consumers in countries such as the UK, Japan, Germany and Australia, prices for Apple’s new phones have risen sharply.
For example, the iPhone 14 starts at $799 in the US, the same price as the iPhone 13 released last year.
In the UK, the iPhone 14 starts at £849 (~$975), and the iPhone 13 starts at £779 (~$886) at launch, an increase of about $90.
In Australia, the iPhone 14 starts at AU$1,349 (about $904) and the iPhone 13 starts at £1,349 (about $872) at launch.
In Japan, the iPhone 14 starts at 119,800 yen (about $904). The iPhone 13 started at 98,800 yen (about $674) at launch.
In Germany, the iPhone 14 will start at 999 euros (about $990), and the iPhone 13 starts at 899 euros at launch (about $890)
This price difference is only for entry-level models, with higher-end models having even bigger price differences. The iPhone 14 Pro Max, for example, is £150 (about $170) more expensive in the UK than when the iPhone 13 Pro Max was released last year.
Reason for the iPhone 14 price increase
The reason why Apple raises the price of mobile phones in some countries is related to exchange rate fluctuations. “Basically, all currencies in the world are depreciating against the dollar,” Chief Financial Officer Luca Maestri said on the company’s fourth-quarter earnings call last week. The field presents challenges for us. Obviously, it makes it more difficult for us to price in emerging markets, and the process of converting those revenues back into dollars has also been affected.”
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While Apple reported an 8% increase in its fiscal fourth-quarter revenue to $90.15 billion, chief executive Tim Cook argued that if it weren’t for a stronger dollar, Apple’s revenue would have been in the quarter double-digit growth. “The negative impact of foreign exchange volatility in the fiscal fourth quarter was more than 600 basis points. Without the currency impact, we could have achieved double-digit growth,” Cook said.
Maestri claims that foreign exchange rates are a very important factor in Apple’s performance. This is both from a revenue and gross margin perspective. Apple does hedge its currency exposure “in as many places as possible in the world,” he said, but that protection does start to diminish as the company needs to keep buying new contracts. He adds that Apple also takes currency conditions into account when launching new products. This is contributing to the recent price hike.
Apple still shoulders some costs
While recent currency fluctuations have led consumers in some countries to pay higher prices for iPhones, there are also examples where Apple is shouldering some of the cost. In 2019, when the U.S. dollar also appreciated relative to other currencies, Apple adjusted prices in some foreign markets and reset them to levels comparable to those in local currencies a year earlier. However, Apple did so because of lower sales due to price hikes. In Turkey, for example, where the local lira fell 33 per cent against the dollar in 2019, Apple’s sales fell by $700 million. “We’ve decided to rebase iPhone prices to be more commensurate with local prices a year ago to help boost sales in those regions,” Cook said in an interview at the time.
But Apple said that in 2022, there would be no decline in demand in these markets. Even in local currencies, India, Indonesia, Mexico, Vietnam and other countries saw double-digit revenue growth, Maestri noted.
“It’s important for us to look at how these markets are doing in local currencies because that really gives us an idea of how our customers are reacting to our products, their engagement with our ecosystem and in general,” he said on the earnings call. We have a better understanding of our brand strength. We have to say that we are very pleased with the progress we have made in many markets around the world in this regard.”
Other brands are affected by currency fluctuation
Apple isn’t the only company acknowledging that currency fluctuations have an impact on its business and pricing decisions. McDonald’s reported that currency fluctuations reduced its revenue by 7 percentage points, resulting in a 5% year-over-year decline in revenue. Without currency effects, its revenue would have grown by 2%. McDonald’s Chief Financial Officer Ian Borden said on an earnings call last week that 60% of the company’s revenue came from outside the U.S., which apparently decreased when converted into U.S. dollars.
The impact of exchange rate fluctuations on P&G is getting bigger. The consumer goods company reports that its net sales fell 6% due to unfavourable currency effects. The company had to revise its forecast for adverse currency effects this year to $1.3 billion. Chief Financial Officer, Andre Schulten said on the company’s earnings call last week: “Exchange rates continue to work against us”
Coca-Cola Chief Executive James Quincey said that a strong dollar has been a tailwind this year. About 80% of the company’s profits come from outside the United States. Quincy expects a bigger negative impact next year. Like Apple, Coca-Cola hopes to offset some of the currency fluctuations by raising prices.
So far, Coca-Cola has not reported a drop in demand due to higher prices, but Quincy acknowledged that many potential consumer concerns are on the horizon. He said: “We do see that consumers are starting to respond in the way they usually do in a recession, by deferring non-essential purchases and perhaps turning to more private label or discounted channels. The impact of the reduced purchasing power of the market. It is gradually emerging.”