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12 September 2022

Can Apple keep selling luxury in a global recession?

The new iPhones will cost more than their rivals, but the tech giant is better prepared for a falling market.

By Oscar Williams

When the first iPhone went on sale in Britain in November 2007 you could buy one for £269; if the price of Apple’s phones had risen in line with inflation over the following 14 years the company’s latest model, the iPhone 13, would have been sold for £367 last autumn.

Instead, it cost nearly twice as much. The iPhone 13 mini started at £679 and the 13 Pro model cost at least £949. Even the cheaper iPhone SE cost £419. This is before the cost of the data services used to connect the phone, and the finance used to pay for it. On the best-selling contract offered by the UK’s biggest mobile network, EE, an iPhone 13, with data and finance, amount to £1,614 over two years. The most expensive iPhone, the 13 Pro Max, can cost as much as £2,792 over two years.

This extraordinary price inflation reflects Apple’s dominance of the premium smartphone market and the degree to which its devices have become embedded in 21st-century life. As pressures on the cost of living undermine people’s disposable incomes, however, analysts are curious as to how Apple’s smartphone business will fare in the months ahead.

“We see the overall mobile phone market dropping quite substantially this year,” says Ben Wood, chief analyst at the technology research agency CCS Insight. CCS predicts that smartphone shipments will decline by 8 per cent year on year, due to component shortages, continued lockdowns in China, the invasion of Ukraine and the cost-of-living crisis. “But Apple,” Wood adds, “is well positioned to weather the storm better than its rivals.”

This is partly down to economic inequality; even the cheapest new iPhone costs more than ten times as much as the most affordable rival. CCS’s market research suggests that the most affluent 15 to 20 per cent of the population has not been dramatically affected by the cost-of-living crisis, and that these consumers are much more likely to be iPhone buyers. This would also explain at least in part why sales of iPhones held up during the last quarter despite rampant inflation affecting household budgets.

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In the early years of smartphone adoption the “upgrade cycle” lasted less than two years, but the average wait to buy a new model has risen since then. Apple has adapted to this by diversifying its iPhone revenues away from the phone itself and towards the services offered on it. It has developed its iCloud, music, TV, Apple Pay and App Store businesses. While services revenues were slightly lower than expected in the last quarter, analysts at Counterpoint Research believe they could surpass iPhone revenues in 2024, now that Apple’s iOS has become the leading mobile operating system in the US.

“For Apple, the iPhone is a remarkable product,” says Wood. “Most mobile phone manufacturers sell you a phone, take a margin on the transaction and then hope in a few years time you’ll come back and buy another one.” The iPhone, by contrast, is “very, very revenue-generative beyond the initial sale”.

[See also: How Apple became the world’s first $3trn company]

This is one of the reasons Apple has not put up the price of its smartphones in the US, despite the rising cost of production. The move will reduce the number of existing Apple customers who defer their next upgrade, and help to ensure that the trend from Android to iOS-based smartphones is not diminished by the inflation crisis.

In the UK, however, the cost of the flagship model is set to rise by £150 to £1,099 when the iPhone 14 Pro goes on sale on Friday (16 September). The iPhone 14 is also set to rise to £849, a £70 increase on the iPhone 13 launch price. The value of the pound to the dollar has in recent days dropped to its lowest level since 1985. Wood says that if Apple sold the new iPhone at “a parity rate” that reflected the price of the previous model without taking into account the UK’s changing economic position, “it would be out of kilter to the pricing in other markets”. Given the popularity and portability of the iPhone, this could lead to “a huge outflow of iPhone devices from the UK” as buyers exploit the difference between UK and international prices.

While Apple is expected to outperform the market this year, doing so will not guarantee its success. “In the current climate,” says Wood, “it certainly would be difficult to predict anything other than a flat market, or a declining market, for a market leader like Apple.”

However, as one of the inventors of the iPod told the New Statesman this year, upgrading smartphones less frequently is one way of reducing the environmental consequences of consumerism. Bad news for Apple may ultimately benefit the planet.

This article was first published on 7 September and has been updated with the latest information.

[See also: Does the rise of the Metaverse mean the decline of cities?]

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