Apple’s Pricing Power And The Competition

  • Posted: 18 March 2009 10:55 AM

    Winterpool - 18 March 2009 01:32 PM

    Economists currently fear deflation, not inflation, so perhaps this would be interpreted as a positive development?  But the fact that it’s mainly owing to higher energy prices would further pinch the consumer’s pocket and so threaten already weak spending, no?

    The rise in new car prices was a shock to me.

    Edited: here we go.  Will we see 101-103 today?  I wouldn’t bet against it.

    On the other hand, I wouldn’t bet on it either.  So, I am in stasis.

    The challenge concerning a continuing rise in prices is an effective negative return on treasuries. It also binds the Fed’s hands and starts the clock ticking on an eventual tightening of the money supply. Unless we see a break in the consumer addiction to cheap credit (consumer access to and use of cheap credit is what has fueled the past few expansions), we will be no further along in fixing the economy (despite the massive doses of stimulus) than we were before the contraction started.

    On the brighter side, real estate has traditionally been an inflation hedge so some inflation pressure may be helpful in reinflating the moribund housing market.

    Ultimately an uptick in prices may be helpful to Apple in relation to competition since Apple maintains higher margins than the competition, forcing competitors to raise product prices sooner due to increasing costs. Low-margin OEMs live on the edge of the pricing sword.

         
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    Posted: 18 March 2009 11:11 AM #1

    Apologies for mentioning this in the intraday thread, but one of the big questions affecting long-term prospects for AAPL is of course the coming inflation.  I’m not sure I share DawnTreader’s belief that Apple has more flexibility owing to its higher margins.  The commodity hardware companies will raise their prices more or less in tandem.  Meanwhile, Apple’s share price will suffer dramatically, I suspect, if it begins losing its celebrated margins.  This is something I’d like to see more discussion of in the inflation thread.

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  • Posted: 18 March 2009 11:15 AM #2

    Apple’s margins are locked in through contracts. Not sure when new contracts will be signed, but they’re known for getting good component pricing by buying in quantity. I think they must shop at Sam’s Club.

         
  • Posted: 18 March 2009 11:31 AM #3

    Winterpool - 18 March 2009 02:11 PM

    Apologies for mentioning this in the intraday thread, but one of the big questions affecting long-term prospects for AAPL is of course the coming inflation.  I’m not sure I share DawnTreader’s belief that Apple has more flexibility owing to its higher margins.  The commodity hardware companies will raise their prices more or less in tandem.  Meanwhile, Apple’s share price will suffer dramatically, I suspect, if it begins losing its celebrated margins.  This is something I’d like to see more discussion of in the inflation thread.

    I started a new topic.

    I don’t see Apple losing its margin control. In fact, I see margins relative to the competition remaining at least steady. MSFT will make a strong effort to increase its OS margins to traditional levels with the release of Windows 7. XP will go away and the Windows OEMs will be under heavy margin pressure. This will allow Apple to maintain margins while being aggressive on product pricing.