Due to the impact of the strong dollar and exchange rate fluctuations, for buyers in many countries, the price of Apple's new flagship smartphone iPhone 14 series is rising sharply, only consumers in China and the United States are not affected.
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). $817), the iPhone 13 will start at 98,800 yen (about $674) at launch; in Germany, the iPhone 14 will start at 999 euros (about $990), and the iPhone 13 will start 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.
The reason why Apple raises the price of mobile phones in some countries is related to exchange rate fluctuations.
Chief Financial Officer Luca Maestri said on the company's fourth-quarter earnings call last week, basically, all currencies in the world are depreciating against the dollar. 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.
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.
Cook said, 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.
Maestri said that foreign exchange rates are a very important factor in Apple's performance, both from a revenue and gross margin perspective. Apple does hedge its currency exposure in as many places as possible in the world but that protection does start to diminish as the company needs to keep buying new contracts. He added that Apple also takes currency conditions into account when launching new products, which has contributed to the recent price hike.
While recent currency fluctuations have caused 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 percent against the dollar in 2019, Apple's sales fell by $700 million.
Cook said in an interview at the time, we've decided to rebase iPhone prices to be more commensurate with local prices a year ago to help boost sales in those regions.
But Apple said that in 2022, there will 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.
He said on the earnings call, 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. 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.
The dollar has also risen steadily against the yuan over the past six months, but there are some signs that Chinese demand for new Apple iPhones may be waning. Although Maestri emphasized that Apple set a new revenue record in Greater China in the fourth fiscal quarter, the US investment bank Jeffries recently released a research report saying that the sales volume of the four new iPhone 14 in the first 38 days in China was higher than that of the iPhone 13. Sales fell 28% over the same period.
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 and bigger. The consumer goods company reported that its net sales fell 6% due to unfavorable currency effects, compared with 3% and 4% in the prior two quarters. The company had to revise its forecast for negative currency effects this year to $1.3 billion, and Chief Financial Officer Andre Schulten said on the company's earnings call last week: Exchange rates continue to work against us.
A strong dollar has been a tailwind this year, Coca-Cola Chief Executive James Quincey said, with about 80% of the company's profits coming from outside the United States. Quincy expects a bigger negative impact is likely 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.
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