Despite not being the top player in the smartphone market, Apple stands out for its colossal profits in the industry. Its persistent profitability exceeds that of leading competitors, such as Samsung and Huawei, despite the latter recently eclipsing Apple to become the world’s second-largest smartphone manufacturer. Incredibly, in 2015 alone, Apple’s portion of the entire smartphone industry’s profit stood at a staggering 92 percent. But what factors contribute to such significant profitability? A simplistic analysis reveals its roots in the materials used for the iPhones and the ultimate selling price of the units. As fundamental business economics dictates, bulk production often leads to a reduction in per-unit costs, translating into larger profit margins.
However, dig a little deeper and you’ll notice the rise in Apple’s costs with each new release, particularly with the latest iPhones. According to market research firm IHS Markit, the cost of creating a 64GB 4.7-inch iPhone 8 is approximately $247.51. This figure is an $11 increase compared to the 32GB iPhone 7 production costs. The research firm concluded that, when manufacturing costs are taken into account, the production cost for an iPhone 8 balloons to $288.08.
*Caption: The production cost of the iPhone 8 has risen compared to its predecessor.*
An additional $7.36 in primary manufacturing costs puts Apple’s total production cost for the iPhone 8 Plus at $295.44. That’s a $17.78 increase over the iPhone 7 Plus production cost. IHS Markit further projected that the iPhone 8 bill of materials totals $247.51 which is $9.57 higher than that of the iPhone 7 at the time of release. The general retail price of a 64GB iPhone 8 commences at $699, a $50 increase from the iPhone 7’s initial price. The iPhone 8 Plus starts at $799, $30 more than the iPhone 7 Plus introduced at.
Despite the increased production cost, Apple has set the starting price for iPhone 8 at $699 with the starting price of iPhone 7 being $649. Clarifying that the figure of $247.51 only incorporates manufacturing costs, one must consider the addition of software and other logistics integral to the production process. After all, an iPhone wouldn’t be an iPhone without the iOS software, would it? Critical components such as the camera costing around $32.50 per unit, storage priced at about $6 per unit, and the A11 Bionic processor adding about $5 more per unit, boost the total manufacturing cost. Yet, the exact costs that merge to justify the $699 starting price tag for the iPhone 8 remain somewhat unclear.
As logic would dictate, the groundbreaking $1,000 iPhone X with its state-of-the-art chassis and edge-to-edge design will undoubtedly see a significant spike in material costs. The iPhone X, due to hit stores in November, has already piqued the curiosity of Apple enthusiasts, and its advanced features are expected to result in robust demand.
The iPhone serves as Apple’s flagship product, accounting for about two-thirds of its business. However, the iPhone’s contribution to the company’s revenue is gradually falling. This diminishing reliance has led Apple’s leadership to shift investments into services such as the App Store, Apple Music, Apple Pay, Apple TV, and iTunes, among others.
Whilst component cost breakdowns remain a hot topic of discussion, Apple maintains that many assumptions made are inaccurate. The company has so far refrained from sharing concrete figures to back this claim. Regardless, Apple’s success in generating impressive profit margins despite market position and rising production costs is undeniably noteworthy.
Paul Balo is the founder of TechBooky and a highly skilled wireless communications professional with a strong background in cloud computing, offering extensive experience in designing, implementing, and managing wireless communication systems.
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.
