Biting into Apple's Russian earnings

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The market for iPhones in Russia is not looking as healthy as it was before the economy and the rouble took a nosedive.


Alexandra Surovtseva
4 February 2015

In its end-of-year report, Svaznoy, one of the largest handset retailers in Russia, reported the mobile phone market had grown 5% in 2014 in physical terms (41m units), and 18% in monetary terms (254 billion roubles or £2.9 billion at the 1 January 2015 exchange rate). According to the report, shops were able to sell more mobiles thanks to B-brands. But it was Apple that helped them to make more money. The US company’s devices have become more popular in Russia; in fact, the demand for new iPhones was getting on for three times as high as in 2013.

However, it is very likely that it is not so much the popularity of Apple’s products as Apple’s price policy, coupled with Russia’s economic crisis, that helped resellers to so much improve their results in monetary terms. Boosting sales during a crisis might sound odd, but it has its logic. The rouble’s steep fall in December instigated panic buying of electronic devices, appliances, and even foodstuffs as consumers were desperately trying to salvage the buying power of their savings. Svyaznoy confirmed this, stating that the best period for monetary results was the 4th quarter of 2014 when reselling companies made 40% more, year on year.

Boosting sales during a crisis might sound odd, but it has its logic.

The price of apples

That stellar quarter was helped by Apple raising its rouble prices twice in the space of a month – during the holiday shopping period – first, on 26 November (raising them by 25 – 27%), and then on 22 December (by 32 – 35%). Apple has made no official comment, but with the dramatic depreciation of the rouble, its products are getting more and more expensive for Russian consumers. In December, the currency had sunk 50% since the start of the year, which had the effect of making iPhones sold in Russia the cheapest in the world. An iPhone 6, 16 Gb is currently for sale at £569.99, advertised by Apple on Amazon [4 February]. Until the first price increase in November, that same phone in Russia cost 31,990 roubles (£454 at the 25 November exchange rate). But, after the second price increase by Apple, the price of that iPhone 6 was 53,990 roubles (£615 at the 23 December exchange rate).

Those who think they could get an iPhone at the bargain basement autumn price by sticking to the now outdated iPhone 5 model would be wrong, however, because that also became more expensive. An iPhone 5 advertised on Amazon, today [4 February] would cost you £339. In Russia, that same phone now costs 43,990 roubles (£482), a whopping 76% increase on the 24,990 roubles (£356 at 25 November rate) it would have cost before the two price hikes.

A bumper harvest

At the same time that it has been raising prices, Apple seems to be increasing its promotional efforts. Last autumn, for the first time, Russians saw Apple’s commercials on TV and in the Moscow metro. The video clip that was aired on television is a copy of the American commercial. But the theme from Stanly Kubrick’s film 2001: A Space Odyssey is sung by Russian VJs and radio hosts Olga Shelest and Anton Komolov. The first Russian Apple commercial ever was immediately noticed by the blogosphere. Some reviews were less than flattering, but that did not stop the clip from being reposted many times – success of a kind. The company’s representative in Russia has refused to give any official comment, but it is understood that the campaign was launched by Apple, not its Russian resellers.



Last autumn, for the first time, Russians saw Apple’s commercials on TV and in the Moscow metro.

It looks as if Apple wants to secure its position in the Russian market. And that seems to be possible; according to Sergei Tikhonov, the representative of Svyaznoy, who says that demand for iPhones grew significantly this autumn: ‘The number of pre-orders was three times higher than last year’s figures. On the night of the sales launch of the iPhone 6 we were selling one iPhone every minute’. Svaznoy didn’t give exact numbers, but according to some sources, on the first weekend, pre-orders amounted to 15,000 devices.

This bumper harvest for Apples in Russia was confirmed during the conference call on earnings in the 4th quarter of 2014, by Luca Maestri, Chief Financial Officer, who told analysts that emerging markets like the BRIC countries – Russia included – were getting more important for Apple as sales were on the rise. But he didn’t say what the exact sales figures in Russia were. Talking about the December quarter he said: ‘We expect revenue to be between $63.5 billion and $66.5 billion compared to $57.6 billion in the same quarter last year. This represents a double-digit revenue increase, despite significant foreign exchange headwinds from the recent strengthenings of the U.S. dollar against most currencies’. Maestri said the impact of foreign exchange fluctuations has been limited so far thanks to Apple hedging its forward commitments. He did not disclose what was Apple’s outlook on sales in Russia for 2015.

The outlook

Russian retailers claim that interest in Apple products is still strong. Sergei Tikhonov of Svyaznoy said his company didn’t expect consumers would reject Apple products because of higher prices as these devices were already being sold in a premium price segment of the mobile phone market. Lyudmila Semushina, the representative of re:Store, Apple’s premium reseller, said December was always a high season for shops, and at the moment she couldn’t assess how the increase in prices would influence demand. Evroset, Russia’s biggest mobile phone retailer is also more cautious. Its PR director Ulyana Smolskaya, wrote in an email that demand would definitely decline. ‘40,000 roubles is a psychological threshold, after which the circle of consumers narrows sharply. It doesn’t mean that people won’t buy smartphones at all, they will choose other devices, cheaper or from a less famous brand.’ That 40,000 rouble threshold was all but reached by Apple on November 26, when the iPhone 6, 16 Gb price was raised to 39,900. Ulyana Smolskaya believes it will become obvious in the first quarter of 2015 that Russians are buying fewer iPhones.

‘40,000 roubles is a psychological threshold.’

Experts, too, do not rule out the possibility of a decline in demand for Apple devices in Russia. Natalia Vinogradova, Senior Research Analyst at IDC Russia/CIS, says, ‘a substantial price increase is going to affect Apple’s competitiveness. By how much, depends on a few factors. Inevitably, all producers will raise prices, but other players are more likely to do so gradually. A sharp price increase for Apple devices may cause a negative response from consumers’. Vinogradova didn’t go into details about what factors could affect Apple’s performance in the Russian market, but the declining economic situation is surely going to play its role. Depending on how much, incomes will decrease in real terms this year, so sales might shrink at a proportionate amount. Of course, for some buyers, iPhones are not just mobiles but a status symbol. But, while there are status-conscious buyers who are ready to buy these devices at any price, they are not the majority of consumers in Russia.

Other mobile phone companies are trying not to scare shoppers away. In November, when Apple raised its prices, its major rival Samsung announced a special offer on flagship smartphones. Until 12 January 2015, five models from the Galaxy family were being sold with a discount of up to 3,000 roubles. Later, Samsung had to raise prices as well, but only on a few smartphones and tablets, and at a moderate rate. In December, the company announced that retail prices were going up by 8 – 11%. On Amazon UK, the Samsung Galaxy Note 4 costs £590 [4 February]. In Russia it now costs 39,990 roubles (£399) compared to the 36,990 roubles (£436 on 16 December) it cost before. If you are a Westerner travelling to Russia, that is some saving. The company’s representative in Russia, Yana Rozhkova, emphasised the price increase was only for premium products. Devices in this segment of the market are always more expensive, she says, and it is believed that their target audience is ready to pay that type of money. But Rozhkova avoided making predictions about possible price changes in January, and added that Samsung had manufacturing capacities in the country, which allowed it to be less dependent on currency fluctuations.

Even the Chinese-made Meizu, the notorious iPhone clone maker, has upgraded its prices

Phones from other manufacturers are getting more expensive in Russia as well. In late December, Sony raised prices for all Xperia devices. Its flagship Xperia Z3 now costs 37,990 roubles (£379), up from 30,000 roubles (£315 on 20 December). HTC has changed its prices too. Its HTC One (M8) increased in price by 8,000 roubles; the current price is 36,990 (£369). Even the Chinese-made Meizu, the notorious iPhone clone maker, has upgraded its prices. The Meizu MX4, 16 Gb is sold anywhere between 20,990 – 21,490 roubles (£209 – 214) compared to its original price of 15,990 roubles in October (£230), when the phone first appeared in Russian shops.


The Meizu MX4, 16 Gb. Image: by John Karakatsanis via Flickr. Some rights reserved

So far, then, despite the rising prices and the falling rouble, neither producers nor retailers have felt any decline in demand. But, taken as a whole, Russia’s mobile phone market this year is unlikely to achieve impressive results money-wise. Russians won’t be so eager to spend in 2015, expects Natalia Vinogradova, from IDC Russia/CIS. After the New Year holidays, most people’s savings have been spent, household incomes have already stopped growing, and consumers are starting to tighten the purse strings as Russia’s economy continues to decline. The iPhone looks set to retain its role of status symbol, and one that is becoming increasingly unaffordable.

Standfirst image: Apple Inc logotype. By Apple Inc, via Wikipedia.

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