Apple’s ‘gamble’ when not increasing iPhone prices

Apple is transforming itself into a software vendor, and this segment doesn’t need the costs of transportation, storage, or the influence of input materials like selling iPhones.

According to Quartz (QZ), experts and the media have all predicted that Apple will increase the price of at least $ 100 with its luxury iPhone line and Apple Watches in order to cope with the situation of device costs going up. .

However, everyone was surprised when Apple did not raise the price of its products. Even the Apple Watch Ultra line of watches costs only $799, $200 less than Bloomberg predicted.

QZ newspaper said that Apple’s failure to increase product prices shows that Apple’s anti-inflation strategy is bearing fruit, but this is also a gamble when the company has to depend on the revenue of the software segment to support. support this policy.

To keep iPhone prices down, Apple has limited the rise of semiconductors by designing its own chips as well as negotiating bargain prices with longtime chip manufacturing partners like TSMC. Meanwhile, revenue growth from software and related services such as the App Store, Apple TV+, Apple Music or cloud computing has helped the company maintain profits despite keeping the prices of iPhone and Apple Watch.

Homegrown

Apple began designing its A-Series chips for iPhone, iPad, and Apple Watch products in 2010. By 2020, it’s also changing Mac computer chips from Intel to the company’s own M-Series. next.

By some estimates, designing chips for Mac computers saves Apple about $2.5 billion a year in fees for Intel. Similarly, designing the chip for the iPhone itself would also save Apple billions of dollars, but the company did not disclose this information. However, it is clear that this is one of the main factors that help apple houses keep the price of this product.

QZ reports that thanks to its self-designed chips, Apple has kept its gross profit margin stable at 40% in recent years. Even the outbreak of the pandemic or the increase in input costs such as battery materials do not have much impact on this index of Apple.

Software vendor

While Apple still relies on iPhone sales for its annual earnings results, it’s slowly transforming itself into a software company.

Indeed, revenue from Apple’s translation services such as Apple Music (released in 2015) or Apple TV+ (released in 2019) is increasing. Even the revenue contribution from the services segment has ranked second in Apple’s total revenue and is gradually narrowing the gap with the revenue from selling iPhones.

Please note that the software and service segment does not need costs such as transportation, storage or being affected by input materials such as selling iPhones. So when its revenue shifts gradually to selling software and services, Apple will be under less pressure to increase prices due to the effects of inflation and supply chain disruptions.