Apple Inc. Jacks Up iPhone Prices in Russia, Again.

As the Russian ruble plunges in value against the U.S. dollar, Apple has had little choice but to increase prices to mitigate the currency's extreme volatility. The iPhone maker took down its online store in Russialast week as it reviewed pricing options, and the company today raised iPhone prices by 35%.Apple had already raised the cost of an iPhone in Russia in late November.

Last month, Apple boosted the price of a 16 GB iPhone 6 by 25%, from 31,990 rubles to 39,990 rubles. Today's increaseputs that same model at 53,990 rubles (approximately $956 at current exchange rates). That means the price has increased by nearly 70% in less than a month.

State of the marketRussia's largest wireless carrier, Mobile TeleSystems , regularly releases reports on the nation's mobile retail sector, providing a useful view of the Russian phone market (including feature phones and smartphones). The carrier hasn't released a third-quarter report quite yet, but the second-quarter report is available here (link opens PDF).

Smartphones continue to gain traction within Russia, with shipments jumping 23% in the first half of 2014. This growth is being driven by strong demand for LTE devices. As usual, Apple has long been perched at the premium end of the pricing spectrum, and so has had limited success on the unit market share front. Apple had 7% share within MTS' retail chain in the second quarter.

More broadly, though, demand in Russia continues to shift to lower-cost devices.

Source: MTS estimates. Figures based on unit sales.

Only 11% of smartphone units sold in the second quarter cost over 15,000 rubles. Even before Apple's price increases, the 31,990 ruble price tag for the iPhone 6 was well into premium territory. Now at 53,990 rubles, Apple's latest and greatest seems even more out of reach to the average Russian consumer. Keep in mind that smartphones aren't subsidized in Russia, either, making the sticker shock that much more potent.

Cause and effectThere are two conflicting effects of the ruble's woes. On one hand, the intuitive expectation is that demand might suffer from higher prices. But on the other hand, the ruble's decline could spur additional spending in the near term for fear of sustained weakness in the currency and more price increases for foreign goods in the near future. It's kind of like hyperinflation on a very small scale, and mostly only applicable to foreign goods. We don't know which of these two effects will prove stronger.

By no means is Apple the only company raising prices to cope with the ruble's decline. Samsung and other international players are doing likewise. But as Russian consumers see the value of their currency decline against other major currencies, the potential increase in spending is likely to shift toward necessities or lower-cost smartphones -- not toward one of the priciest smartphones on the market.

The silver lining is that Russia isn't a critically important market for Apple. The company has clashed with Russian wireless carriers on numerous occasions due to Apple's notoriously strict requirements for its carriers. Still, the ruble's troubles aren't helping matters.

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Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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