Employees arrange an Apple iPhone as a customer shop in the Apple Store.
Mike Seger | Reuters
last time Apple Faced with this inflationary environment, it became a publicly traded company in less than a year, and the best-selling product was the Apple II home computer.
May, Annual inflation rate In the United States, it was 8.6%, the highest level since 1981. Similar or even higher levels of inflation are seen in other major markets for Apple’s sales.
Not only is Apple facing increased costs due to global logistics and rising employee salaries, but lower purchasing power could also allow consumers to postpone iPhone upgrades. Apple is also facing supply constraints associated with China’s closure this year, as a result. $ 8 Billion Revenue Hit..
Many companies, especially those with pricing power, can pass on the increased costs to their customers by raising prices, especially when demand is strong. Apple hasn’t raised the price of the iPhone in the US, but on a regular basis Tweak Pricing around the world in response to currency fluctuations. Over the years, Apple changed the product price structure of new device slate in the fall.
Apple was also able to hit its margins and eat up some of its costs, while stabilizing prices to avoid falling demand.
“From an inflation perspective, we’re looking at inflation,” said Apple CEO. Tim Cook To investors Revenue call During April. “It is clear or clear from the gross profit for the previous quarter and the operating expenses for the previous quarter, and the guidance assumes that: [CFO] Luka [Maestri] I gave it this quarter as well. So we’re definitely seeing some inflation that everyone thinks they’re seeing. “
Cook said there are at least two places where inflation appears on the company’s balance sheet. Gross profit and operating expenses.
According to FactSet data, Apple’s gross margin for the quarter was 43.7%, higher than analysts expected, but slightly lower than the December quarter, the highest since 2012.
According to Maestri, Apple’s margins fell in the June quarter, between 42% and 43%. However, Apple’s margins have expanded during the pandemic and are still at a high level historically.
Operating expenses for the quarter were $ 12.58 billion, an increase of almost 19% year-on-year. In the June quarter, Apple predicts that operating expenses will gradually increase to approximately $ 12.8 billion.
Tim Cook will be speaking on stage at the TIME 100 Summit 2022 at the Jazz at Lincoln Center.
Countess Gemal | Getty Images Entertainment | Getty Images
Fares are one source of those costs.
“Cargo is a big challenge,” Cook said in April. “From an inflation perspective, and from an availability perspective.”
Another cost increase is related to the silicon shortage caused by the blockade of Covid-19 in China in the first half of this year and the overall shortage of non-advanced chips needed to complete the product. However, Cook said the price of some components has dropped.
Apple may also be facing increased labor costs. The company is canceling payment For corporate and retail employees who respond to market conditions after some rivals Google, AmazonWhen MicrosoftEarlier this year, we made changes to our rewards to attract and retain top technology talent.
Katie Hooverty, an analyst at Morgan Stanley, said in a post-closing note: “The other companies we follow lack margins on cost inflation, but lower commodity costs are a factor. We see the cost basket as relatively stable as it offsets rising costs and fares. “
But increased costs aren’t the worst scenario for Apple. The greater risk is when inflation and other macroeconomic conditions undermine demand for Apple products.
Traditionally, consumers have postponed the purchase of durable consumer goods, including electronics, during the recession or in the face of reduced purchasing power, economists say.
For Apple, this means that consumers who bought their phones a few years ago may decide not to upgrade to the latest model this year and postpone costs until economic conditions improve. There is likely to be.
“Sometimes we just pay attention and postpone the purchase,” said Jim Wilcox, an economist at the University of California, Berkeley. “Wait a minute and it’s a very wise financial strategy.”
Investors are much more comfortable with Apple’s customers being loyal and therefore likely to continue to upgrade their devices on a regular basis, but the inflation-related recession casts doubt on that belief and raises Apple’s earnings. It may be doubled.
“In the case of Apple, they have a very strong ecosystem and their customers are very loyal,” said Bernstein analyst Toni Sakonagi. Said on CNBC this week. “But most of their revenue comes from selling products, which is driven primarily by loyal customers. In a recession, customers can delay purchases or delay upgrades. There is a possibility. Therefore, the flow of revenue is not exactly repeated, so it is mainly a transaction. “”
Apple Not yet signaled weakness. In April, he said demand remained high, suggesting that there were no signs of a decline in consumer confidence. The bigger problem was to create enough supply to meet the demand for that product.
However, the smartphone and laptop markets are showing signs of slowing down. The high-end part of the smartphone market that Apple sells is holding up more than bargain bins, although overall telemarketing is starting to decline. Micron TechnologyMemory supplier for Apple devices, Warning on thursday Smartphone and PC sales were expected to decline significantly from previous forecasts, partly due to rising global inflation and weakening consumer demand.
Recent estimates show that shipments of so-called premium devices, which cost more than $ 400, fell 8% in the first quarter compared to 10% of the total market. From Counterpoint Research..
Apple can afford to pay some additional costs. Its sales have grown over the past two years, maintaining a healthy margin that is the envy of hardware competitors.
But Apple may not have to eat those higher costs at all.
Customers tend to have significant disposable income compared to Android device buyers who tend to choose based on price.
According to Counterpoint, in the “ultra-premium market,” or phones over $ 1,000, Apple accounted for 66% of shipments in the first quarter.
“As global inflation rises, entry-level and low-priced segments are likely to be hit harder,” counterpoint researchers wrote.
According to a June Morgan Stanley survey, 70% of US consumers planned to cut spending over the next six months due to inflation. But wealthy households, Apple’s customers, were more aggressive about their financial and economic trajectory.
“Households with incomes of $ 150,000 or more are more resilient. The biggest increase in reduction plans is seen in the middle-class income cohort,” said Morgan Stanley analysts.
Over the last five years, Apple has raised the price of the iPhone several times.
In 2017, Apple announced a high-end $ 1,000 iPhone model. This has brought together a significant percentage of customers who are willing to pay for more powerful devices.Nowadays, Apple is quiet Price increase in 2020 When the starting price of the mainline best-selling model (iPhone 12 at the time) was raised from $ 699 to $ 799.
Reuters pointed out On Friday, Apple raised the price of its flagship mobile phone in Japan by nearly a fifth, and the entry-level iPhone 13 is now worth $ 870.
Is it possible to raise the price more widely this year?cooking I haven’t excluded it.