Why Apple Just Hiked the Price of Every New iPhone

September 12, 2017, 8:06 PM UTC

Before today’s unveiling of updated iPhones, Apple was widely expected to add a new premium model at a premium price. But few predicted that Apple would also hike the price of its entire phone line.

As expected, Apple priced its new premium device, the iPhone X, starting at $999. With a brighter, clearer OLED screen, better cameras, and other exclusive features, some Apple fans may be lured to shell out more for the X phone. The high-priced iPhone follows the debut last month of Samsung’s Galaxy Note 8 at a starting price of $950.

The real surprise was with the new iPhone 8 and 8 Plus, which are less significant upgrades from last year’s iPhone 7 and 7 Plus. Apple said the new smaller model, with a 4.7-inch display, would start at $699 ($50, or 8%, more than last year) and the larger 5.5-inch display model would start at $799 (a $30 or 4% price hike).

The increases may not be all that noticeable to people who buy the phones on a typical two-year installment plan, analyst Jan Dawson at Jackdaw Research noted. An entry level iPhone 8 would go for about $29 a month versus $27 for last year’s iPhone 7 on a carrier’s monthly payment plan. “In practical terms it will make very little difference to the monthly payments most consumers make to pay for smartphones,” Dawson wrote after the new prices were revealed.

Offsetting the higher cost, the starter models included 64 GB of storage, double amount of the entry level models of 2016. Apple also stealthily raised the price of most of its iPad Pro line on Tuesday, without adding any more storage.

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Apple introduced the new phones at the first press event it held on its new Apple Park campus in the Steve Jobs Theater. The company also debuted upgraded versions of its Apple Watch and Apple TV set-top box.

The higher priced phones address at least two key challenges for Apple. For one, the high-end smartphone market is starting to get saturated. There simply aren’t many people left on the planet who can afford an iPhone but who don’t already have one. By raising prices and adding a more expensive model, Apple can generate a big jump in revenue even if it sells the same number of phones.

The iPhone X also addresses a second issue, which relates to limited component supplies.

Apple sells over 200 million iPhones annually, so until now, if a part couldn’t be procured in extremely large volumes, Apple couldn’t add that feature. But with the new higher priced model, Apple can add a feature such as the bright 5.8-inch OLED display just to that phone without needing 200 million display parts. And OLED supplies are tight around the world, forcing Apple (AAPL) to rely on its top competitor, Samsung, for the 2017 models.

News of the premium iPhone first leaked last year. In November, KGI Securities analyst Ming-Chi Kuo forecast that Apple was prepping three new models for 2017 including one with a fancy OLED screen that would cost more.

The 2017 price hikes follow Apple’s successful decision to raise the price of just the larger-screen Plus model by $20 last year. Even with the minor price increase, iPhone 7 Plus sales jumped ahead of the company’s expectations, Apple CEO Tim Cook has said.

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