It looks likely that 2023 could be a tough year economically…so how will Apple play it?
How low will you go?
Apple is never going to be a stack ‘em high, sell ‘em cheap kind of company. It’s just not their gig.
I continually come up against folks that maintain that I, and other Apple users, are paying through the nose. While I’ll admit that Apple’s products and devices sell at a premium price point, I’d also maintain, you get more performance and innovation – more bang for your buck, as it were. There continues to be an element of confusion, between high cost, and value.
You don’t become one of the most valuable, and profitable companies in the world accidentally. Apple’s skill is in maximising global, revenue growth.
A changing of focus
Apple is witnessing changes in their business model, undoubtedly. There is a slowing of revenue growth in most categories. Services have hit a roadblock, and due to the strength of the recently released products, device sales are slowing as well. Folks have already recently bought the best, so why replace?
The last set of financial results for this year were healthy enough. The Company posted a September quarter record revenue of $90.1 billion, up 8 percent year-on-year, and quarterly earnings per diluted share of $1.29, up 4 percent. Annual revenue was $394.3 billion, up 8 percent on the previous year.
Those results led Luca Maestri, Apple’s Chief Financial Officer, to say;
“Our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop,”
But, the board is aware that this coming year could deal them a unique trading environment. And oddly, the strong dollar is not helping their cause.
The Apple foreign exchange
From the outside, you’d imagine that a strong dollar would be great news for U.S. companies like Apple. The truth is, though, that whilst it’s great for American tourists, it’s actually bad news for companies who are exporting their goods. All the while the retail prices stay the same in the countries they export to, Apple will make less profit.
So, it would appear that Apple has two choices to make – keep prices unchanged, and watch the profit margin slip, or hike prices, and see how much they can get away with. Maestri almost said as much, too;
“When we launch new products, we look at the foreign-exchange situation, and in some cases, customers in international markets saw some price increases when we launched new products, which is not something that U.S. customers have seen. Unfortunately, that is the situation that we are in right now with the strong dollar.”
Prices have remained pretty stable in the U.S. recently, but sadly, the same cannot be said for the global market. Apple, is effectively rolling the dice, and seeing how the game plays out.
By increasing prices in foreign markets, as they have done this year, they have clearly taken the route of protecting share-holders profits, and jacking-up the ticket prices in countries outside the home market. Welcome to Apple’s own stock-market game. As the prices go up, they sit back, and watch how it affects sales.
Possibly good news for Apple, but not such good news for those of us outside the States.
The inelastic Apple world
An inelastic economy is one where demand for services, or products, remains the same, no matter how far it’s prices rise or fall. And, for the Cupertino company with the golden touch, it seems that is what they’re experiencing.
Back to the CEO…
“One of the things that we’ve really appreciated, was the fact that in spite of this very strong dollar and the difficult foreign exchange environment, we have seen very strong performance in many international markets, particularly some very large emerging markets.
It’s important for us to look at how these markets perform in local currency because it really gives us a good sense for the customer response to our products, the engagement with our ecosystem, and in general, the strength of the brand.
And, I have to say, in that respect, we feel very, very good about the progress that we are making in a lot of markets around the world.”
Further on, Maestri highlighted the sales in India, Mexico, Vietnam, and Indonesia. Those emerging economies, for Apple, saw solid growth, despite some hefty prices increases.
Emerging markets, however, do not tell the full story. In those countries, and economies, they can tap in to the wealthiest, who are as yet, not ‘Apple’d up’. For the wealthy, the price is not the defining pinch-point.
The desire to own anything from Apple wins out. But, when those at the top have been served, will the average Joe be just as happy to spend their hard-earned cash?
More for the Pro’s
All of the above, may go some way to explaining why the Mac Pro was held back, and why we are seeing a shift towards the Pro devices – the MacBook Pro, iPad Pro, and iPhone Pro. We know that the sales of the smaller, cheaper phones are down, with talk of Apple pulling out of that market altogether.
Apple knows they can rely, and niche-down, on their core customer base. I expect to continue to see a slew towards the higher-end, pro products – with higher prices and better profits.
But, for all that, they are aware that having key products, at strategic price-points, remains important to them.
That is why the M1 MacBook Air, and iPhone 13 remain on sale from Apple, even though newer models are now available. It paints the company in a good light, offering contemporary designs, at lower prices. Those products serve almost as gateway devices to the Apple ecosystem. Get them in young, and they’ll never leave…
Apple is a relentless moneymaking machine.
Their continued success in markets where it can get away with charging more, and more, with continued strong results, means we are almost bound to see a switch in strategy.
In the future, as I said, I’d expect to see more of the expensive, high-end products and devices they are known best for. Yes, there will be some collateral damage, but, those that love Apple and what they sell, will doubtless continue to follow and buy what’s on offer.
It’s a risky strategy, but so far, it seems to be working out for them. But, is there a breaking point? Watch this space, I guess.
From a marketing standpoint, Apple rarely gets it wrong.
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