The iPhone 7 and 7 Plus may not look much different from their predecessors. But Apple is spending much more money to manufacture the iPhone 7 than it did on the iPhone 6S. Folks at IHS Markit performed a teardown of the new iPhone to calculate the basic materials and manufacturing costs. The higher costs are due to features like a bigger battery, a larger storage capacity, water resistance, a faster processor, and a new home button.

iPhone 7
Image Credit: Apple Inc.

Display is the most expensive part of the iPhone 7

The total bill of materials for the 32GB iPhone 7 is $224.80, including $5 in basic manufacturing costs related to assembly and testing. The iPhone 6S manufacturing cost was $187.90. IHS Markit pointed out that the iPhone 7 display was the most expensive component at $43. The Intel modem and other baseband chips were second most expensive components at $33.90. Apple’s ultra-powerful A10 Fusion processor costs an estimated $26.90.

Surprisingly, the 1920mAh battery is estimated to cost only $2.50. The improved rear camera and 7MP front-facing camera cost a total of $19.90. The combined cost of electromechanical components such as the Taptic Engine, antenna, stereo speakers, microphone, and connectors is $16.70. The accessories included in the iPhone 7 box have an estimated manufacturing cost of $11.80. According to IHS Markit, the phone’s Samsung-made 2GB RAM and SK Hynix-made 32GB NAND flash storage together cost $16.40.

Higher BOM could affect Apple’s profit margins

It’s worth pointing out that the bill of materials doesn’t represent the actual costs as it does not take into account costs related to R&D, licensing, software, and shipments. Despite the 18% increase in the bill of materials compared to the iPhone 6S, Apple has kept the base price for the iPhone 7 the same at $649. The rise in manufacturing costs, but not in the price to customers, points to a maturing market.

It could eat into Apple’s profit margins. However, IHS Markit praised Apple for its ability to keep costs in check. The bill of materials for Samsung’s Galaxy S7 is about $265, but it sells at roughly the same price as the iPhone 7. Apple is witnessing strong demand for the iPhone 7 and 7 Plus.