During the weeks leading up to Apple’s product launch event on September 7, conflicting rumors surfaced about which devices and what features would make their debut. But a prediction was almost universal among the journalists, financial analystsY twitter leakers that normally set expectations about these events: The company would increase the prices of its most luxurious iPhones and Apple Watches by at least $100, to offset the increased cost of electronic components.
In that context, the biggest surprise of today’s event was that Apple No increase the prices of the iPhone or Apple Watch and introduced the new Apple Watch Ultra at $799, approximately $200 less than anticipated by Mark Gurman, a Bloomberg journalist and Apple’s most prominent (and generally accurate) rumor monger.
Apple’s surprisingly stable prices are a sign that the company’s strategy to weather inflation is paying off. Apple has limited the impact of rising semiconductor prices by designing your own chips at home and amazing favorable offers with its main chipmaker, TSMC. Meanwhile, Apple is growing software and services revenue— which includes earnings from the App Store, Apple TV+, Apple Music and cloud storage — has allowed the company to increase its overall profit margins. Both trends are helping Apple bear higher component costs for hardware like the iPhone and Apple Watch.
Apple’s A-series chips cut component costs
apple started designing your own A-series chips for iPads, iPhones, and Apple Watches in 2010, and switched its Mac computers from Intel semiconductors to Apple-designed M-series chips in 2020. Designing its own Mac chips saved the company an estimated $2.5 billion a year in license fees to Intel and in the design of internal chips for iPhone can save the company billions morealthough Apple has not published concrete figures on its savings on semiconductors.
Cheaper chips have helped Apple keep its gross profit margins steady at around 40% in recent years, even as the pandemic wrecked global supply chains and pushed up the cost of raw materials like metals from batteries.
Apple services revenue is on the rise
Apple generally relies on iPhone sales for the bulk of its annual revenue. But over time, Apple has made more of its revenue through streaming services like Apple Music, which launched in 2015, and Apple TV+, which launched in 2019. The services are Apple’s second-largest source of revenue. Apple and have been closing the gap with iPhone sales. .
Apple’s streaming businesses aren’t subject to the same supply chain restrictions or component costs as building and shipping iPhones, iPads and Apple Watch. As more of Apple’s revenue moves into the digital realm, the company faces less pressure to raise prices in response to inflated manufacturing and freight costs.