According to a new report by IHS, Apple’s component costs for the iPhone 7 have risen compared to the previous iPhone. This means you are technically getting more bang for your buck when you buy an iPhone. But don’t fear, Apple is still making a tidy margin higher than the industry average.
Folks will almost always say “that leaves out costs for software/hardware development, research marketing, etc etc.” But the reason these companies make these estimates is for the n+1 cost of the iPhone. That means the profit Apple makes on every extra iPhone above the fixed costs and an important metric to consider.
The report says Apple’s bill of materials for a 4.7-inch iPhone 7 with the base 32GB storage is $220.80. Apple sells this iPhone 7 for $649 at retail so there’s plenty of room for Apple to make money. Full breakdown of component costs after the break …
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IHS says the total component cost of iPhone 7 is actually higher than the iPhone 6s, by about $36. This is driven by newer components and technologies like the Taptic Engine, better camera and storage increases.
The analysis breakdown says Apple pays $26 for every A10 system-on-a-chip. IHS claims that the chip runs on a 16 nanometer process and features a six-core GPU. The front and back cameras cost just under $20 as a pair. The most expensive component is the display; Apple seemingly pays $39 for its 4.7-inch IPS LCD panels. In contrast, the 1960 mAH battery costs just $2.50.
The research company has not yet analyzed the bill of materials for the iPhone 7 Plus which will be more expensive to produce thanks to its larger 5.5 inch LCD screen and the complex dual-camera system. Early estimates indicate that the dual-camera system component costs around $40 to manufacture.
Apple typically makes ~38% gross margins as a business, of which the iPhone makes up the majority of its sales. Manufacturing cost for the iPhone 7 is estimated at $220.80 by IHS but note that this is not the total cost of the product from Apple’s perspective. It also must incorporate packing, shipment, taxes and marketing costs. There is also the matter of software development, employee salaries, and further R&D financing to consider.
Although Apple is paying more than the $220 baseline, even after all of the additional costs, it is still likely raking in profits of about $250 per unit. IHS says Apple’s manufacturing cost for iPhone is still below Samsung’s flagship phones despite rising $36 over last year.
“Total BOM costs for the iPhone 7 are more in line with what we have seen in teardowns of recent flagship phones from Apple’s main competitor, Samsung, in that the costs are higher than in previous iPhone teardown analyses,” said Andrew Rassweiler, senior director of cost benchmarking services for IHS Markit. “All other things being equal, Apple still makes more margin from hardware than Samsung, but materials costs are higher than in the past.”
The cost for the 32GB flash storage and 2GB RAM total $16.40 per iPhone sold. Apple will make even more money from the higher end SKUs as increasing the storage from 32GB to 128GB costs Apple a mere few dollars but the company charges $100 for the upgrade.
This is mitigated somewhat by the fact Apple has doubled storage at every tier so people are getting a better deal: Apple offers iPhone 7 in 32/128/256GB configurations. The supply chain analyst says that Apple’s margins have taken a slight hit because of the decision to bundle more memory, despite falling NAND flash costs.
Regardless of the relative costs behind the scenes, Apple appears to have pulled off another successful iPhone launch with the iPhone 7 and iPhone 7 Plus sold out in many locations. AAPL stock has spiked in the last week as customer anticipation for the new phones was higher than originally predicted.