Thursday, 24 November 2016 11:56

Will our iPhone prices get Trumped?

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One analyst has suggested that the rest of the world may have to pay for the additional cost of manufacturing iPhones in the US triggered by Donald Trump's proposed "bring back our jobs" measures.

Victorian readers may remember the experience of being "Jeffed." A reference to former Premier Jeff Kennett, this meant being made to carry the cost of changes to government policies (perhaps by being retrenched) without being allocated an offsetting share of the benefits.

It's possible that Australian and other non-American iPhone buyers are about to be Trumped.

Writing for Seeking Alpha, research analyst Robert Castellano points to reports that Apple has asked iPhone makers Foxconn and Pegatron to look at moving iPhone production to the US as a way of avoiding the 45% tariff on Chinese goods mooted by Trump.

Castellano cited a Wall Street Journal report of an analysis performed by a Syracuse University professor of information studies to conclude that local manufacturing would increase the cost of an iPhone by 20%.

Castellano observed that "Apple doesn't have to move total iPhone production to the US, just for the 20 or so percent purchased in the US and under the jurisdiction of the US government. But any additional costs to manufacture in the US would be spread out over the entire 100% of iPhone sales."

If Apple did spread the cost that way, iPhone prices around the world would increase by 4%, assuming the company wanted to maintain its margins.

So a basic iPhone 7 in Australia would go from an already pricey $1079 to $1122. And a fully loaded iPhone 7 Plus (currently $1569) would cost $1632.

Companies like Apple have to maintain reasonably consistent pricing around the world if they want to avoid grey marketing. That's difficult in an age of fluctuating currency exchange rates. Big brands need relatively stable prices whereas small importers of specialist items are able to adjust prices almost daily if necessary – look at the cutthroat PC components business (motherboards, graphics cards, etc) if you need an example. As I've previously argued, Apple's local pricing incorporates its predictions of currency movements in order to maintain price stability.

There is already some grey marketing in Australia. For example, that $1079 iPhone 7 can be purchased for $899 from Kogan (actually Kogan HK).

So I agree with Castellano. The chance of Apple quarantining increased US production costs to its US customers seems unlikely to me. So prepare to be Trumped.

Image: Apple

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Stephen Withers

Stephen Withers is one of Australia┬╣s most experienced IT journalists, having begun his career in the days of 8-bit 'microcomputers'. He covers the gamut from gadgets to enterprise systems. In previous lives he has been an academic, a systems programmer, an IT support manager, and an online services manager. Stephen holds an honours degree in Management Sciences and a PhD in Industrial and Business Studies.

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