The iPhone X is far more expensive than the iPhone 7 or any other iPhone for that matter. It has a starting price of $999 for the 64GB and $1,149 for the 256GB version. In some countries such as Russia and India, the price goes up to $1,500. It will certainly burn a hole in many pockets. But it doesn’t mean Apple is going to make hefty profits on the 10th-anniversary iPhone. That’s because the iPhone X component cost is far higher than the iPhone 7.
Higher iPhone X component cost to hurt Apple’s profits
Citing Susquehanna International Group, the Wall Street Journal reports that the total cost of components inside the iPhone X is $581. Apple is spending a lot of money to make each unit of the iPhone X. Don’t forget that $581 is only the cost of components. It doesn’t include the cost of assembling the device. And then there are costs related to marketing, advertising, administration, retailing, taxes, patents, and royalties.
Susquehanna did not reveal how much the tech giant pays to assemble the iPhone X. The above number is for the 64GB storage model. The cost for the 256GB model could be even higher. The iPhone X component cost would make it difficult for Apple to earn huge profits. Last year’s iPhone 7 used components worth $248, and was selling for $649.
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It means the iPhone 7 had a per-unit gross margin before assembly of $401 ($649 – $248). For the pricier iPhone X, it will be $418. Of course, $418 is still higher than $401. But when you look at profit as a percentage of the respective phone’s price, the iPhone 7 gave Apple a margin of 61.78% compared to just 41.84% for the iPhone X. The actual margins on both phones come down even further after factoring in the assembly, marketing, and other costs.
A Chinese insider says it costs $412
Chinese publication iChunt.com says the estimated iPhone X component cost is at least $412. According to the site, Apple pays around $80 to Samsung for each unit of the Super Retina OLED display. The new A11 Bionic chip costs $26 per unit, slightly higher than the last year’s A10 processor. Apple also pays $18 per unit for the Qualcomm modem.
The 3D infrared sensor is estimated to cost $25, and Toshiba charges around $45 for the NAND flash memory. The iPhone X component cost, marketing expenses, salaries, etc. still don’t give us the complete picture. Apple has been investing heavily in R&D and augmented reality, which also needs to be added to the phone’s cost. Once you take all these factors into account, the profit margins are only going to be lower.
iPhone X cannibalizing the iPhone 8 sales
The iPhone X is Apple’s most revolutionary smartphone in years. It has ditched the home button. The entire front panel is now a screen, except for a small ‘notch’ at the top where the selfie camera, ear speaker, and other sensors are placed. The phone sports a 5.8-inch OLED display with a Super Retina resolution of 2436 x 1125 pixels. The fingerprint sensor has been replaced by a new Face ID that is far more secure than Touch ID.
The 10th anniversary iPhone features an A11 Bionic processor that puts even the most powerful Android devices to shame. The iPhone X also boasts of fast-charging and wireless charging capabilities. The device will be available for pre-orders on Oct.27, and go on sale on November 3rd.
KGI Securities analyst Ming-Chi Kuo told investors that the iPhone X was cannibalizing the iPhone 8 sales. The iPhone 8 and 8 Plus, already up for pre-order, will hit the stores on Friday, September 22. Since these two are only minor upgrades, consumers are waiting for the iPhone X. Kuo pointed out that the iPhone 8 and 8 Plus currently have availability window of only 1-2 weeks for online orders.
Typically, availability for a new iPhone jumps to 3-6 weeks after the initial pre-orders. That’s not the case with the iPhone 8 and 8 Plus. Penguin Intelligence recently surveyed 75,000 users in China. About 66% who were in the market for a new iPhone said they would go for the iPhone X. Only 20% wanted to buy the iPhone 8 Plus, and 13% wanted the iPhone 8.
Apple must have anticipated that most buyers would want the iPhone X. That’s why it spaced out the release dates of the iPhone 8 and iPhone X, giving buyers plenty of time to decide which one they want. The delayed iPhone X release will also allow the iPhone 8 to stay in the limelight for a few weeks rather than being overshadowed by the X from day one.
iPhone X to be in scarce supply this year
Kuo has also said that the iPhone X will be in scarce supply throughout the holiday shopping season. Most buyers will have to wait until early 2018 to get their hands on the device. The huge gap in demand and supply is due to production issues. KGI Securities says Apple’s manufacturing partners were producing only 10,000 iPhone X units per day, which is far less than what is needed to meet the potential demand.
Only a lucky few will be able to get the 10th-anniversary iPhone on November 3rd. If you want to be one of them, be one of the first to place your order when pre-orders begin on October 27, or wait in a queue outside an Apple Store for days.