Apple fans were a bit disappointed when the company bumped up the starting price of new iPhones without offering a new design or any major upgrades. Now that the iPhone 8 and 8 Plus have hit the store shelves, experts at the research firm IHS Markit estimate that the jump in base price has mainly to do with the increased iPhone 8 component cost. The bill of materials for the iPhone 8 and 8 Plus is higher than last year’s models.
iPhone 8 component cost is about 35% of the sales price
Apple will still be making huge profits on the new iPhones because the increase in price tag is much higher than the rise in the bill of materials. According to IHS Markit, the 64GB iPhone 8 has material costs of $247.51, slightly higher than $237.94 for the 32GB iPhone 7 released last year. Apple sells the 64GB iPhone 8 for $699 compared to the iPhone 7’s starting price of $649 for the 32GB version.
The iPhone 8 component cost is about 35% of its sales price, which is similar to the last year’s iPhone 7. It’s worth pointing out that the component costs do not include the cost of assembly, marketing, advertising, R&D, software, employee salaries, etc. So, the bill of materials doesn’t give you the accurate picture of Apple’s profit margins on each unit.
The material costs for the 64GB iPhone 8 Plus are estimated to be $288.08, up from the iPhone 7 Plus’s $270.88. The iPhone 8 Plus starts at $799 compared to iPhone 7 Plus’s price of $769 at the time of release last year. IHS Markit analyst Wayne Lam said the “added value went to memory, camera, and processing.” These are the areas where Apple has improved the new iPhones.
Which components increased its bill of materials?
Citing IHS Markit, Bloomberg reports that the wireless charging technology increases the iPhone 8 component cost by $2. The A11 Bionic processor costs $5 more than its predecessor, and the 256GB memory bumps up the price by $6. The new camera system in the iPhone 8 Plus costs $32.50, according to IHS Markit. The research firm said the display panels and the mechanical enclosures were some of the most expensive components in the iPhone 8 and 8 Plus. Apple has added True Tone display technology to the new iPhones.
The iPhone 8 component cost is significantly lower than the 10th-anniversary iPhone X, which will have a starting price of $999. Earlier this month, Susquehanna International Group estimated that the bill of materials for the iPhone X was $581 for the 64GB version. The anniversary model’s OLED display costs $80 per unit. Other expensive components include Toshiba’s NAND flash memory ($45), the 3D infrared sensor ($25), the A11 Bionic chip ($26), and the Qualcomm modem ($18).
If you break your iPhone 8’s rear glass…
All the three iPhones have a glass panel on the back to facilitate wireless charging. Apple claims the new iPhones have the “most durable glass ever in a smartphone.” The tech giant has used a metal sheet with a hole in the center for wireless charging coil. There is “lots” of glue between the metal sheet and the glass panel. It means replacement of the rear glass panel will be difficult and expensive. Recent drop tests revealed that the iPhone 8 and 8 Plus are still vulnerable to cracking if you accidentally drop your device.
Apple Insider reports that customers with AppleCare+ are required to pay only $29 for a screen replacement from Apple. However, it applies only to the screen, and not to the rear glass panel of the iPhone 8 and 8 Plus. The display is relatively easy to disassemble, but the disassembly process for the rear glass is difficult due to all the glue. If you accidentally break the iPhone 8 or 8 Plus’s rear glass, you’ll have to shell out $99 plus taxes because it comes under “other damages.”
Multiple Apple employees told Apple Insider that after two incidents of accidental damages, customers would have to pay a much higher amount to get the rear glass replaced. How much? That’s $349 for the iPhone 8 and $399 for the iPhone 8 Plus.
iPhone 8, 8 Plus sales a big disappointment
The iPhone 8 and 8 Plus, despite sporting the world’s best smartphone camera, have seen disappointing sales worldwide. The opening weekend sales were far below analysts’ expectations. Unlike previous years, the queues in front of Apple Stores for the iPhone 8 and 8 Plus were very small. Online pre-orders were also lukewarm at best, according to industry experts.
Experts believe that most consumers are holding out for the 10th-anniversary iPhone X. Apple will start accepting pre-orders for the iPhone X on October 27, before bringing it to the market on November 3. According to KGI Securities analyst Ming-Chi Kuo, the iPhone X will be in scarce supply through early next year due to severe production issues.
According to data from Localytics, the iPhone 8 accounted for merely 0.3% of all the active iOS devices by the end of its first weekend. By comparison, last year’s iPhone 7 had captured 1% of the iOS market at the end of its opening weekend, and the 2015 iPhone 6 had grabbed 2% of the iOS market share. The one bright spot for Apple was the iPhone 8 Plus, which was able to capture 0.4% of the iOS market at the end of the opening weekend. The iPhone 7 Plus had gained 0.2% share last year.
If the iPhone 8 and 8 Plus sales remain lukewarm and the iPhone X remains in scarce supply, Apple may witness a weak holiday quarter. However, revenues are expected to be strong due to the higher price tag of all the new iPhones announced earlier this month.