The upcoming iPhone 8 or iPhone X is widely expected to feature an entirely new design and major internal upgrades. The phone is said to come with an edge-to-edge OLED display, long-distance wireless charging, and IP68 waterproofing capabilities. All these features are going to push up the cost of the handset, believes Cowen & Company analyst Tim Arcuri.
Consumers willing to shell out more for new features
When Apple released the iPhone 7 and 7 Plus, there were more differences between the two phones than just screen size. The iPhone 7 Plus featured a dual-camera system, a bigger battery, and more RAM. The base model of the iPhone 7 Plus sells at $769, which is $20 more the iPhone 6S Plus.
Cowen & Company analyst Tim Arcuri estimates that despite its higher price tag, the iPhone 7 Plus accounted for 40% of the 58.5 million units of the latest iPhones sold during December quarter. By comparison, the iPhone 6S Plus accounted for just 23% of the mix in December 2015 quarter. It means consumers are willing to pay more for new, cooler features. Arcuri says the iPhone 7 Plus would boost the average selling price of iPhones to $693.
So, it makes financial sense for Apple to add more “premium features” in the iPhone 8 and sell it at a higher price point. The research firm said Apple “pulled the pricing lever like never before” with the 5.5-inch iPhone 7 Plus. Arcuri believes there is “even more room” for a similar move with the forthcoming releases.
In China, where Apple is facing stiff competition from local Android vendors, consumers showed a clear preference for the more expensive iPhone 7 Plus over its smaller sibling. During the December quarter, the iPhone 7 Plus accounted for 52% of the total iPhone sales in the country, up from 40% for the iPhone 6S Plus in the same quarter of 2015.
OLED display to push up iPhone 8 cost
Arcuri said in his research note that the wraparound OLED display on the iPhone 8 would increase its manufacturing cost. The OLED screens are thin and light. They are more energy efficient, and offer more vivid colors than their LED counterparts. But they are far more expensive to make. Arcuri told investors that Apple would incur $50 million more in expenses during the March quarter due to the OLED-based iPhone 8 design.
With all the exciting features coming with the iPhone 8, the Cupertino company is likely to increase the price of the 10th anniversary device as it tries to squeeze more profit out of every iPhone it sells. Creative Strategies analyst Ben Bajarin told the Wall Street Journal that the technology gap between iPhones and cheaper Android devices has narrowed. But consumers still value what Apple is doing, and value is enough to get them to spend more money on iPhones.