The iPhone has weathered a previous economic crash – but are we deciding enough is enough?
When the iPhone was unveiled in January 2007 and released six months later, the world was an entirely different place. Stock markets and wages were high; the entry-level model’s cost at $499 was expensive and unusual for an untested device such as a large-screened smartphone. But people could afford it.
Things have changed rapidly since then. A year or so after the iPhone was released, the world entered a financial and economic crisis that almost brought economies to the brink. Despite the challenges to domestic finances, people kept buying the iPhone. It has been big business for Apple, half of whose revenue is believed to come from the sale of smartphones.
But now it seems like that untrammeled success may be coming to a halt. Apple has decided to downsize its production of the new iPhone 14 by around six million units in the second half of this year, according to Bloomberg. Rather than 96 million, the company will produce just 90 million units.
Producing 90 million units of any device is still a major coup for the Cupertino company, but the fact it’s a smaller-than-expected run of products suggests that the tide could well be turning against Apple when it comes to the devices they make. Trying to unpick why there’s a lower-than-forecast demand likely for the iPhone is tricky.
But there are potential reasons, and prime among them is simply the idea that the iPhone has become too expensive. “Weak demand from Europe and China could hurt overall iPhone sales in fiscal 2023,” says Bloomberg Intelligence analyst Anurag Rana. That’s down to economic headwinds, and the company producing the devices increasingly getting out of sync with the reality of life on the ground at a time of significant economic risk.
A recession seems likely in many western economies as we struggle to cope with the bounce back from COVID-19. In the UK, a bungled government economy means that further pressure has been put on household budgets – all while inflationary pressures keep squeezing costs.
Squeezing costs are a challenge, not least when talking about big ticket items like iPhones and the amount they cost. Smartphones are a big investment for individuals, and at times of economic stress, are decisions that people dwell on more carefully. It’s something that has become more of a careful decision as the average selling price of the iPhone has increased over time.
In 2015, the average selling price of an iPhone was $690, and had risen to the fourth quarter of 2021 to reach $873. However, the new iPhone model was a watershed moment, with prices forecast to rise further. The average selling price will rise to a record $892 in Q3 2022 and $944 in Q4, according to Counterpoint Research.
Is that too much for some to handle, and the news that Apple is drawing down production an indication that that’s the case? Not everyone is convinced.
“Our view is the headline of ‘not increasing production’ (around 6 million units) overshadows the underlying story for iPhone 14 Pro demand that is currently playing out in the field,” says Dan Ives, principal analyst at Wedbush Securities.
Ives believes that demand for the more costly iPhone Pro model will remain robust. “Wait times have extended into early November for some Pro models and we maintain our belief that Apple is shifting production from the base model to Pro across Asia ahead of holiday season,” he says. “As we have discussed, initial iPhone 14 units was roughly 90 million and is in line with iPhone 13, and that remains firm/unchanged.”
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