Apple Inc. is planning to reduce prices of some flagship iPhones in countries outside the US to counterbalance the strengthening dollar that has made their devices much pricier than rivals.
The drop will mark the second time the company is lowering prices of its phones pegging iPhone’s retail value to past prices in local currencies outside the United States instead of the rising U.S. dollar.
The pricy iPhones have weakened the sales of iPhone, especially outside the United States in countries like China. For instance, a 10 percent rise in the US dollar in China over the past one year has made Apple’s products very expensive forcing people to opt for the rivals.
The Chief Executive of Apple Inc., Tim Cook, disclosed the plan on Tuesday after the company realized the first-ever drop in iPhone sales during the key holiday shopping period. The only other time the company has cut iPhone prices was shortly after it debuted in 2007.
Although there was no disclosure as to which countries the price cut will be implemented, resellers in China already started reducing the prices earlier in January 2019 after Apple lowered its sales forecast for the quarter ended in December.
The company priced its new iPhone XS, which was released in September, at $999, the same price in U.S. dollars as its predecessor, 2017’s iPhone X.
The set price worked for consumers in the US. However, for countries where the local currency had fallen so much against the dollar, iPhone XS was notably pricier than its predecessors one year before.
Apple had essentially asked the consumer to bear the cost of the strengthening dollar. But as it would seem, the idea isn’t working.
According to Cook, Apple will adjust foreign prices in some markets through resetting them at or close to what they were one year before in local currencies. This means that the company will absorb the cost of the strengthening dollar.
“We’ve decided to go back to (iPhone prices) more commensurate with what our local prices were a year ago, in hopes of helping the sales in those areas,” Cook told Reuters in an interview.
<h2>Rising Dollar Hurting Apple Sales</h2>
Cook, in the company’s quarterly earnings call on Tuesday, also highlighted the impact of foreign exchange problems in Turkey, where he said the local lira had depreciated by 33 percent against the dollar and Apple’s sales were down by 700 million US dollars from the previous year.
In November, Apple also cited currency pressure on its prices in Brazil, India, and Russia.
Apple has not revealed when or how often it might reset its prices because of foreign currency changes but Chief Financial Officer, Luca Maestri said the price adjustments may not extend to its services business, which includes Apple Music and the App Store.
The unit beat analyst expectations with 10.8 billion US dollars in sales in the quarter ended in December, growth has slowed compared to previous years.
Maestri attributes the slower growth partly because prices rose for users in non-U.S. markets.
“Roughly 60 percent of our services business is outside the United States, and as you know, the U.S. dollar has appreciated in recent months,” Maestri said.
“And in general, we tend not to reprice our services for foreign exchange on a very frequent basis,” he added.