With a US$1,000 price tag, Apple's iPhone crosses a threshold

The Apple logo is seen on the facade of an Apple store in Paris on Jan 5, 2017.
The Apple logo is seen on the facade of an Apple store in Paris on Jan 5, 2017. PHOTO: REUTERS

SAN FRANCISCO (NYTIMES) - When Apple unveils its new top-of-the-line iPhone on Tuesday (Sept 12), it isn't just expected to offer features like infrared facial recognition and wireless charging for the first time.

The company will also enter new territory on price: The latest phone will start at about US$1,000 (S$1,340), compared with the US$769 minimum for its current top phone, the iPhone 7 Plus.

"It's a whole new threshold," said Debby Ruth, a senior vice president at the tech consulting firm Frank N. Magid Associates. I really do think it's going to make people pause."

From the iPhone's introduction a decade ago, Apple has always priced it as a premium product - a more refined and polished alternative to the legions of cheaper smartphones available in the market.

But this time, the company is pushing into luxury territory. The new phone will cost as much as the company's entry-level MacBook Air laptop. "They're doubling down on their strategy: They are going much more to the high end," Ruth said.

Apple declined to comment before the product announcements scheduled for Tuesday. On Saturday, Steven Troughton-Smith, a developer who combed through the iOS 11 software, found references indicating that the new high-end phone will be called the iPhone X.

Investors are betting that Apple's move up the price ladder will pay off with much higher profits, especially in mature markets like the US and Western Europe, where many of the buyers will be people upgrading from older iPhones. The company's stock has risen nearly 50 per cent over the past year as anticipation has built about the 2017 models.

Apple's strategy carries risks, however, especially in developing countries where smartphone sales are growing briskly but its market share is a blip compared to devices running Google's Android software.

In Brazil, for example, Apple devices will account for just 8 percent of the 125 million active smartphone subscriptions this year, according to Forrester, a research firm.

Steep taxes, higher retail profit margins, and added costs from a botched attempt at building iPhones in Brazil have pushed the price of an iPhone 6s, a 2-year-old model, to more than US$1,000 at Casa Bahia, a store in the Copacabana neighborhood of Rio de Janeiro.

In late August, the retailer was selling Apple's most basic smartphone, the iPhone SE, for more than US$600, while a Samsung Galaxy J1 Mini, which runs Android, was just US$136.

At another Rio store recently, Vanessa Perreira, 25, a university student, was browsing the 65 models on display, looking at the offerings from Samsung and LG but ignoring the six from Apple. She once owned an iPhone, she lamented, but could not afford to continue buying them. "Price is the most important factor for me," she said.

Still, the iPhone is coveted by wealthier Brazilians, many of whom buy the phone while traveling abroad to avoid their country's high costs. "There will always be users in Brazil that will be interested in buying it," said Tina Lu, a senior analyst with Counterpoint Research.

 
 

China's reception to the US$1,000 iPhone will be even more crucial to Apple. The Greater China region, which includes Hong Kong and Taiwan, contributed US$8 billion to Apple's revenue last quarter, but sales have been sluggish.

Apple's market share has declined slightly in China over the past year, according to Counterpoint. High-end phones from Chinese brands like Huawei and Oppo have gained ground, in part by undercutting Apple on price.

The new iPhone has the potential to reverse that trend. More than any other tech product, the iPhone has long denoted status in China. If a new iPhone looks the same as the previous one - and won't be recognised by others as new - it often doesn't sell well.

"If the phone's appearance changes, I think people are going to be crazy about it, because we've seen the iPhone with a similar look for such a long time now," said He Peihuan, a Shanghai-based financial analyst.

Apple has also faced pressure from the Chinese government. State-run media outlets have called attention to a feature that tracked a user's most commonly visited locations and also criticised the company's after-sales policies. And government employees and leaders at state-run companies try to avoid being seen using foreign technologies like the iPhone.

For all that, Zhang Xiang, a phone reseller and repairman in Shanghai, said he still expected strong demand for the new iPhone. "I think when people can afford it and want a high-end phone with good features, they'll still choose to buy an iPhone," he said.

One important factor offsetting the next iPhone's expected high price is the increasing prevalence of financing options for buyers around the globe. In the United States, most phone carriers allow customers to spread the cost of a new phone over two years, and the new phone would add less than US$10 a month to the payments a customer would make on an iPhone 7 Plus.

"There's not that much difference in the monthly fee you have to pay," said Brian Blau, a technology analyst at Gartner, a research firm.

Similar instalment purchase plans are emerging in China, Brazil and other countries, making Apple's products more affordable there.

"I've seen some banks providing instalment plans for the iPhone with very low, or even no interest, so ordinary people could get an iPhone that way," Zhang said.

Neil Cybart, an independent Apple analyst who writes at the site Above Avalon, said that he will be looking to see what Apple says about lower-priced models on Tuesday. Analysts expect the company to announce two phones that are upgrades of the existing iPhone 7 and 7 Plus and will be priced at similar levels to those phones' current prices. But if the company also offers a model below $400, particularly in developing countries, that could help lure a new generation of users onto the iPhone platform, he said.

That would play into Satish Meena's theory of iPhone adoption in developing countries.

Meena, a senior forecast analyst at Forrester who is based in New Delhi, said that in places like India and Brazil, where millions of new smartphone users are entering the market, the first phone that people buy is a cheap Android. The second tends to be a fancier Android. Finally, they upgrade to an iPhone.

"The iPhone is your dream phone," he said.