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Flattening iPhone and Chinese Economy

Gold iPhone at work
Photo of House iPhone with 7yo.

EVERY WEEK OF JANUARY passes with yet another page in the story of slipping iPhone sales. It's a story based on evidence from both the supply chain and from the Chinese economy. [1]

A few months ago, Katy Huberty from Morgan Stanley pointed to “higher prices in international markets (ex-China) and maturing smartphone penetration in developed markets" both resulting in a lower imperative to upgrade and a steeper slope for new users. [2]

If Apple wants to keep its 35% margin, iPhones have to remain at the top of the smartphone pile. Apple's largest market outside of the Americas is China. With the Chinese yuan devalued against other currencies, the iPhone should have become more expensive in China where most of these customers use the recently devalued yuan as currency. It was assumed Apple would pass its increased costs onto the Chinese consumer by raising the price of the new phone--but it didn’t.

Apple priced the iPhone 6S the same price as the iPhone 6 (5288 yuan for a 16GB version). Last year, 5288 yuan converted to $861. But after the yuan devaluation, the exchange rate brings in only $829, a $32 difference. Apple is taking a hit on iPhone margins in China but not getting an increase in sales.

And global iPhone globally are tracking towards a minor decline as well.

Apple's fiscal year ends before the launch of the iPhone 7, which means iPhone sales in for Fiscal Year 2016 could almost certainly post the first annual decline since the flagship product launched almost a decade ago.

I'm interested in watching what happens in the Android Phone realm during the same time period.

1. J.R. Wu -- "Apple iPhone Sales Look on Course for First-Ever Annual Drop" on Reuters, January 22, 2016.

2. Rob Price -- "MORGAN STANLEY: iPhone sales will drop in 2016 for the first time ever" in Business Insider, December 15, 2015.

DISCLOSURE: Bernie Goldbach has three iOS devices in his home, including the iPhone 6 in the photo, and a Macbook Air.

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