[Apple Shockwave](35) Why iPhone Prices Don't Rise Even When 'Elusha' Goes Up

Apple Freezes iPhone 15 Price Contrary to Expectations
Absorbs Price Increase Factors with In-House Chip
Apple A Chip Over $50 Cheaper Than Competitors Despite High Performance
iPhone 15 Among Cheapest Considering Inflation
Samsung Must Reapply In-House Chip to Boost Profits

Editor's Note[Apple Shockwave] is a content series that examines the upheaval caused by Apple entering the semiconductor market. You might wonder why Apple is involved in semiconductors. Apple is no longer just a company that makes smartphones and computers. After long efforts starting from the late founder Steve Jobs, Apple has designed world-class semiconductors used in mobile devices. If Intel was the leader in the PC era, Apple has become the top predator in the mobile era semiconductor ecosystem. Amid the global semiconductor supply chain crisis and large-scale semiconductor production line investments, we will carefully examine the upheaval and prospects in the semiconductor market brought about by Apple Silicon to broaden our readers' insights. Apple Shockwave will reach readers every Saturday. After more than 40 installments, it will be published as a book.

"Among luxury goods, the only thing that doesn't go up in price seems to be the iPhone."

'Luxury goods' are usually free from price tags. The iconic luxury brands 'E·Lu·Sha' (Herm?s, Louis Vuitton, Chanel) are often said to be at their cheapest now, but there are exceptions. The Apple iPhone is one of them.

The author also purchased the iPhone 15 Pro Max. Although the price rose in Korea, compared to the iPhone 13 Pro Max 256GB bought in the U.S., the price remained the same in U.S. dollars despite having the same capacity.

Every time a new iPhone is released, the media and YouTubers flood the market with numerous predictions and analyses. Some are accurate, others are not. The iPhone 15 using titanium as a material and the first adoption of a USB-C port instead of the traditional Lightning charging port were as expected.

Apple has continuously added features such as application processor (AP) chips, displays, 5G, premium housing, and increased base memory capacity to maintain the competitiveness of its premium smartphone, the iPhone. Performance has steadily improved, but one thing has not changed: the price tag. The base prices in the U.S. remain $799 for the standard model and $999 for the Pro. Given Apple's market dominance and customer loyalty, it could have raised prices to increase revenue, but it did not.

The price of the iPhone X is being revealed on the screen at the 2017 iPhone launch event.

The price of the iPhone Pro has not changed since 2017. Only the highest-end model, the iPhone 15 Pro Max, raised the base memory capacity to 256GB?double that of other iPhones?and increased the price by $100, but compared to the iPhone 14 Pro Max with the same capacity, the price was frozen.

Apple surprised consumers and competitors by releasing the iPhone X in 2017 to celebrate the 10th anniversary of the iPhone, with a price tag of $999. Considering the iPhone 8 launched alongside it was priced at $699 (consumers in various U.S. states could buy it for mid-$700s including tax), this was nearly a 50% premium phone introduction.

On the 13th, the official domestic release date of the iPhone 15 series, customers are experiencing the products at the Apple Store Myeongdong in Jung-gu, Seoul. Photo by Jin-Hyung Kang aymsdream@

The iPhone X marked the disappearance of the home button on the iPhone. It is also criticized as the culprit that triggered smartphone price inflation.

Six years later, the situation has changed. The price of the iPhone 15 has again been frozen. The iPhone 15 Pro remains priced at $999. This marks six consecutive years of price freezes. Some even say the iPhone is the only product whose price has not risen during the high inflation era following the COVID-19 pandemic.

Of course, this situation is limited to the U.S. Apple raised iPhone prices in Korea last year due to the sharp rise in the won-dollar exchange rate. They applied an exchange rate of about 1,400 won and maintained the price despite the exchange rate falling this year.

It is rare for companies to lower prices once raised. This is even more true for products called luxury goods. Apple applies different exchange rates for each product category such as phones, PCs, and AirPods. The iPhone, which has the highest consumer preference, is subject to the highest exchange rate.

In 2021, the U.S. consumer price inflation rate reached 4.7%. In 2022, it soared to 7.9%. In September 2022, when the new iPhone sales began, the inflation rate was as high as 9.1%.

The iPhone price freeze contrasts with the surge in U.S. car prices, which became a key factor in the sharp rise in inflation. After COVID-19, new and used car prices in the U.S. skyrocketed. Due to semiconductor shortages limiting vehicle production and increased demand, new car prices soared, and in some cases, used cars became more expensive than new ones.

Changes in iPhone prices in dollars adjusted for US inflation rates. Red represents the base iPhone model, green is the Plus, and blue is the Pro Max model.

The situation with phones is different. Smartphones and phones are essential consumer goods for modern people. They account for about 0.439% of the U.S. consumer price index. Even though the replacement cycle for phones has lengthened compared to the past, people inevitably replace phones more often than computers.

Considering inflation since 2017, the price of the iPhone 15 is analyzed to be the cheapest. According to PerfectRec, the inflation-adjusted price of the first iPhone is $732. (The original retail price of the first iPhone was $499. Steve Jobs emphasized that the iPhone combined the functions of a phone, internet communicator, and iPod, but was priced only slightly higher than the iPod at $499. Of course, most media and consumers at the time thought this price was expensive.) Adjusted for inflation, only the first iPhone is cheaper than the iPhone 15. The second model, the iPhone 3G, is $832. The iPhone 12 sold in 2020 is evaluated as the most expensive at $943. This is likely due to the sharp inflation after 2021.

The first Pro model, the iPhone X, is evaluated at $1,248 adjusted for inflation. The Xs Max introduced in 2018 is considered the most expensive in history at $1,333.

Considering the recent high inflation, the iPhone price is analyzed to be about $40 to $50 cheaper than in the past. At this point, Apple is like a savior to U.S. President Joe Biden, who is struggling with inflation.

Wedbush Securities analyst Dan Ives sees Apple's price freeze as an amazing deal for consumers. Ives said, "Apple could have put a much higher price tag if it wanted, but it did not." Despite the premium phone nature where people would buy even if prices rose, Apple chose not to.

There is also analysis that Apple froze prices to mitigate the shock of price increases amid a shrinking overall smartphone market. According to market research firm IDC, global smartphone shipments in Q2 declined year-over-year.

Analysts agree that the biggest reason Apple could maintain iPhone prices while securing profitability is because it develops its own core chips. Ives identified Apple's ability to design its own core 'A' chips as the reason it can keep iPhone prices steady.

Apple uses its self-developed A17 Pro and A16 chips in the iPhone 15 Pro and iPhone 15. The A17 Pro uses TSMC's 3nm process. Despite expectations that chip prices would rise due to lower manufacturing yields and that iPhone prices would increase by about $200 per unit, Apple defied these predictions and left the price tags untouched.

Apple sources key components like Samsung's displays, Sony's camera sensors, and Qualcomm's communication modems externally, but its AP chips, even when manufactured by TSMC, are inevitably cheaper than buying from outside suppliers. This is why Apple aims to develop its own communication chips as well.

This situation also has significant implications for Samsung. The role of Samsung's self-developed Exynos chip is important. Having Exynos is a key factor in price negotiations when purchasing Qualcomm's Snapdragon AP. Although Samsung did not use Exynos in the Galaxy S23, the move to use Exynos again in the S24 is likely related to this situation.

IT media Gizmodo analyzed that Qualcomm's latest chip used in the Galaxy S23, the Snapdragon 8 Gen 2, is more expensive than Apple's A16. Gizmodo reported that Qualcomm charges Samsung $160 for the Snapdragon 8 Gen 2, while Apple's A16 costs $110. Even so, the A16 price has doubled compared to the A15 introduced a year earlier.

Qualcomm Snapdragon 8 Gen 2

Both Apple’s A16 and Qualcomm’s chips are manufactured using TSMC’s 4nm process, but Samsung ends up paying much more for chips. Qualcomm is also expected to raise the supply price for the upcoming Snapdragon 8 Gen 3 chip. Rising chip prices lead to higher finished product prices. Neither manufacturers nor consumers welcome price increases.

Samsung has received positive consumer feedback by relying on Qualcomm instead of its own Exynos, but for profitability improvement, self-developed semiconductors are essential. A Qualcomm insider once told the author, "Samsung should just make memory." Their interest is likely in expanding their own profits rather than the advancement of Samsung and Korean smartphones.

One more thing: Apple has not raised iPhone prices but has steadily increased service fees. Apple Music, whose market share has greatly increased, rose from $9.9 to $10.9 last year, and Apple TV Plus increased from $4.99 to $6.99. Apple cited rising license costs due to inflation. The share of services in Apple’s revenue continues to rise. Apple sacrifices product prices for consumers but earns more than enough through services.