Surging global prices for semiconductors are forcing even the largest, most supply-chain-resilient names in technology to raise the costs of their products.
This, in turn, is expected to make consumers more cautious about spending, including during the latter part of the year, when holiday shopping traditionally increases.
"Essential replacements will still happen, but consumers may trade down to older models, lower storage options, refurbished devices, or competing brands," Charu Chanana, chief investment strategist of Saxo Bank, told The National.
"Discretionary purchases, such as an additional tablet, premium foldable or gaming-console upgrade, are easier to postpone."
Cycling around
The cost of chips has soared amid unprecedented demand from artificial intelligence companies for chips to power their infrastructure. This, in turn, has been passed along the supply chain.
Apple, the maker of the iPhone, raised the prices of some of its iPads and MacBooks in June, while Samsung's latest Galaxy Z foldables were introduced last month with higher retail prices.
Both companies acknowledged that they were grappling with chip prices. A Samsung regional executive told The National the company was working to maximise affordable options for consumers. Nevertheless, orders for the Galaxy Z series hit records in markets such as the US, South Korea and Europe.
Apple, meanwhile, is expected to introduce its new iPhones next month, including, reportedly, its first foldable, which will also be at higher prices. The California-based company does not comment on rumours or market speculation.
The new pricing may affect replacement cycles — consumers' plans to replace their devices or upgrade to new ones.
"The most immediate consumer response to higher prices is to extend the replacement cycle," said Linda Sui, founder and principal analyst of California-based Smart Analytics Global.
"Affluent consumers are likely to continue purchasing premium technology products despite higher prices ... by contrast, lower-income and more price-sensitive consumers are expected to reduce discretionary spending on non-essential electronics or postpone purchases altogether," she told The National.
Another factor that may be adding to consumers' ditching annual upgrade cycles is that improvements between device generations have become more incremental, Ms Chanana added.
"Higher prices will reinforce that trend," she said. Instead, one strategy that companies will try to offset longer replacement cycles is offering subscriptions, services, financing and trade-in offers, she added.
Microsoft, meanwhile, increased the prices of its Xbox gaming consoles by $100 for the 512GB version and $150 for the 1TB model. The company had already raised US prices by $20 to $70 last October.
The US tech major declined to comment, but referred to a statement on its website that said it "hoped another price increase would not be necessary", after spending the past several months working with suppliers on options for chip supplies.
Microsoft acknowledged the added pressure on gaming machines, saying that unlike smartphones, computers, speakers and other consumer devices, "consoles are typically not sold at a profit, but instead for less than they cost to make".
Joumana Karam, head of Middle East marketing at Acer, which produces gaming computers, said user behaviour is shifting.
"The budget-conscious consumers are switching to lower price configurations, previous generation models or entry level models that deliver day-to-day performance," she told The National.
"For casual users, they cancelled their purchases and opted to defer the upgrades until major promotions or hardware failure occurs," she said.
And professional users are still "a bit more resilient, although they might stretch the replacement timeline slightly. However, they will buy as they seek productivity and competitive play first".
Going against the grain
In certain markets, experience remains key. Consumers in the UAE, for example, favour experimenting with the latest innovations, currently centred on AI, said Debo Zhang, chief executive for the Gulf at Honor, the smartphone brand formerly owned by China's Huawei Technologies.
"For users who prioritise cutting-edge experiences and the productivity gains brought by AI, the motivation to upgrade remains strong, and their purchasing behaviour is unlikely to be significantly deterred by market price fluctuations," he told The National.
For other categories, such as security cameras, for instance, which are not impulse buys, the trends are different. They are heading towards a "more positive" territory, said Syed Ali, regional head of sales for the Middle East, Africa and India at Delaware-based Reolink.
"People invest in them when they move into a new home, expand their property, or when their security needs genuinely evolve," he told The National.
"The shift toward AI-powered features like intelligent motion detection, on-device analytics and 4K imaging gives consumers a compelling reason to upgrade that goes beyond a spec sheet."
Expensive holidays?
The overall consumer electronics market is becoming more expensive, and this will probably gather pace as the holiday season approaches.
Ms Sui expects the holiday season to become increasingly polarised across different consumer segments and vary significantly by geography.
"Emerging markets are likely to face much stronger headwinds due to lower purchasing power, while mature markets should prove more resilient thanks to higher disposable incomes, broader financing options and stronger premium consumer demand," she said.
Analysts forecast that the holiday season will be affected. It is unclear how major sales bonanzas such as Amazon's White Friday and Cyber Monday in the US could play out this time.
"Higher component costs will squeeze the margins on all levels and compress the promotional depths across product lines ... there will be selective discounts aimed at old existing inventories and an increase on value-added bundles instead of price-cuts," Mr Zhang said.
The likely outcome, Ms Chanana noted, is stronger promotional activity alongside weaker full-price unit sales.
"It is still early to judge the full holiday impact because employment, confidence and disposable income will matter as much as device prices."
