Apple spends an estimated $247.51 on iPhone 8 parts, $288.08 on iPhone 8 Plus

Posted:
in iPhone edited September 2017
Apple CEO Tim Cook has repeatedly dismissed bill of material estimates as incorrect, but that's not stopping research firm IHS Markit to share its latest findings with industry analysts. This year, the firm estimates Apple spends $247.51 on the components that comprise one 4.7-inch iPhone 8 with 64GB of storage.




The estimate, which only accounts for hardware, not manufacturing, software and R&D, represents about 35 percent of iPhone 8's $699 sale price, reports Bloomberg. That figure is nearly identical to last year's iPhone 7, which carried an estimated $237.94 BOM, but came equipped with 32GB of flash memory.

The larger 5.5-inch iPhone 8 Plus boasts a BOM of $288.08, up from $270.88 with the iPhone 7 Plus, according to IHS. Along with a larger screen, the additional spend can be attributed to a revamped dual-camera array that costs $32.50. Like the iPhone 7 Plus, the iPhone 8 Plus incorporates an optical image stabilization system for only one rear camera -- the wide angle module. Apple's upcoming iPhone X features OIS on both wide and telephoto lensers.

Aside from a bump in storage and camera equipment, Apple made improvements to the handset's processing capabilities with the all new A11 Bionic system-on-chip.

Unveiled at a special media event earlier this month, Apple's iPhone 8 with A11 Bionic is an applications processor powerhouse that blows away its mobile chip forebears, and even matches low-end MacBook Pro models in certain benchmarks. Notably, the SoC is Apple's first to boast an in-house designed GPU.

The extra processing horsepower runs a $5 premium over last year's A10 Fusion SoC, which the firm pegged at $26.90.

As usual, the display and mechanical enclosures top the list as iPhone 8's most expensive components. This year Apple introduced True Tone display technology to iPhone, as well as a glass backing to enable inductive charging.

The IHS estimates should be taken with a healthy dose of skepticism. Cook has in the past denounced supply chain guesstimates, saying he has never seen a breakdown "that's even close to accurate."
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Comments

  • Reply 1 of 22
    Apple CEO Tim Cook has repeatedly dismissed bill of material estimates as incorrect, but that's not stopping research firm IHS Markit to share its latest findings with industry analysts. This year, the firm estimates Apple spends $247.51 on the components that comprise one 4.7-inch iPhone 8 with 64GB of storage.



    As usual, the IHS estimates should be taken with a healthy dose of skepticism. Cook has in the past denounced supply chain guesstimates, saying he has never seen a breakdown "that's even close to accurate."
    Of course, for Apple’s 40% margin, Apple’s costs have to be much smaller...
  • Reply 2 of 22
    It’s well known in manufacturing that the cost of the product should be about 1/3 and no more than 1/2 the cost of the finished product. Sounds like Apple follows this pattern. Keep in mind they must pay for R+D, tooling, development, logistics, support, marketing, internationalization, shipping, support, customer service, insurances, trade, lobbying, etc...
    watto_cobrasteveau
  • Reply 3 of 22
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    LukeCageLucioguidoStrangeDayswatto_cobrariverkoRayz2016
  • Reply 4 of 22
    jungmarkjungmark Posts: 6,547member
    The part break downs are meaningless. It's like saying pills are cheap to make. So who wants to pay for the first pill. 
    Lucioguidowatto_cobracalipscooter63stanthemanSpamSandwich
  • Reply 5 of 22
    So, it’s obviously completely true that there is so much more to pay for than just the parts of the device, but it’s not like Apple is designing and developing a new product (as in totally new) each year - the iterative development means incremental development costs and all the others that are amortized over a number of years as well as across product lines.  Apple is steadily making more off of each IPhone year after year - at least according to my magic tome of knowledge ;-)
  • Reply 6 of 22
    SoliSoli Posts: 7,847member
    jungmark said:
    The part break downs are meaningless. It's like saying pills are cheap to make. So who wants to pay for the first pill. 
    Even their estimates on component costs are just guesses that I would've put any stock in. For me to even begin to take them seriously I'd have to see a margin of error for each and every component which would add up to a much wider range of potential costs, instead of this BOM down to the penny.
    watto_cobrastantheman
  • Reply 7 of 22
    I don't want to suffer through a Bloomberg article, but do they infer or try to imply that Apple is overcharging customers for the iPhone, or is it just putting out a guesstimated BOM as ammunition for others?
  • Reply 8 of 22
    Apple's “A11 Bionic is an applications processor powerhouse [which] ... blows away its mobile chip forebears, and even matches low-end MacBook Pro models in certain benchmarks.” The A11 has an estimated cost of about $32.

    Meanwhile, Intel’s latest generation Kaby Lake processors range in price from $42 to $350. That is a 31% premium above the A11 on the low end and a 993% premium on the top. The A11 is built on TSMC’s 10nm process, while Kaby Lake is 14nm.
    edited September 2017
  • Reply 9 of 22
    JanNLJanNL Posts: 233member
    I don't want to suffer through a Bloomberg article, but do they infer or try to imply that Apple is overcharging customers for the iPhone, or is it just putting out a guesstimated BOM as ammunition for others?
    Did it for you  ;)
    Piece is rather neutral, saying margins are equal for Apple as the higher price covers the more expensive parts.
    bestkeptsecret
  • Reply 10 of 22
    irelandireland Posts: 17,298member
    jkichline said:
    It’s well known in manufacturing that the cost of the product should be about 1/3 and no more than 1/2 the cost of the finished product.
    Depends on the product. Cheaper products are usually meant to be a maximum of 1/4 the manufacturing costs of retail price.
    edited September 2017 GeorgeBMac
  • Reply 11 of 22
    irelandireland Posts: 17,298member
    zomp said:
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    “Free” cloud account.
  • Reply 12 of 22
    The article and most of these comments fall into the same trap that the media and Samsung loyalists fall into each fall:   Comparing hardware to hardware -- CPU speed, memory size, camera pixels, etc...

    But:
    Most of the benefit from Apple products stems from its ecosystem rather than its hardware.  Macs and MacBooks are clear examples of that:  Most of their hardware is off-the-shelf non-Apple stuff that any third rate vendor can stuff into a box.  But, the Apple ecosystem makes that hardware great.
    ...  And, ecosystems cost money to build and to maintain.  But nobody wants to talk about that part.
  • Reply 13 of 22
    Shark Tank:

    Kevin: "What does it cost to make and what do you sell it for?"
    Apple: "$245.51 to manufacture, sells for $699"
    Mark: "and how many have you sold?"
    Apple: "we project sales of about 200 - 300 million units this year"
    Damon: "Ok, I'll give you $100,000 for 10% of your company"




  • Reply 14 of 22
    mike1mike1 Posts: 1,676member
    Sounds reasonable. Factor in assembly cost, packaging  and freight to the US, and you'd be around 50 - 55% margin. Since this is a premium phone and presumably the older phones are selling at lower margin, this would help achieve the desired average iPhone margin of around 40%

    R&D is never a factor in the cost BOM. Software would be if it was purchased from a third party. Not sure if Apple would put a cost on each install of iOS though. They may treat its development as a standalone cost somewhere else in the balance sheet or roll into R&D expenses.
    edited September 2017
  • Reply 15 of 22
    mike1mike1 Posts: 1,676member
    zomp said:
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    That's not how margin works. First, "design and development, stock people, rent and so much more" are not included in the margin calculation or the landed cost of the product. Margin of the phone is not affected at all if they sell fewer phones. Apple's overall profit would be, of course, but the amount of gross profit per phone stays the same unless they lower the price.
    GeorgeBMac
  • Reply 16 of 22
    Why is it so damn important what Apple spends on building their iPhones? I have never seen any of this sort of breakdown for Rolex watches, Dyson vacuums, or say a BMW or even a Toyota. Maybe I haven't read enough trade magazines, but in all my years I never really saw a breakdown of component costs for any products. Imagine if there were a breakdown of component costs for home mattresses. Stuffing, coils and fabric materials could never add up to thousands of dollars in consumer cost but they do.  What about the component costs of a needed medicine that goes into a small capsule.  The value comes from what it can do for a patient and not necessarily the component powder.  That's something that usually goes on behind the scenes and has absolutely nothing much to do with consumers. A consumer sees a product and usually knows the retail cost and that's it. They can either afford the product or they can't.

    What is the need for this component cost breakdown for Apple products? Is this also done with Chinese products? I remember when Nokia was the prime manufacturer of cellphones. Don't tell me they were breaking down all the component costs of Nokia's whole cellphone line which comprised of many dozens of models. I'd swear that someone is trying to deliberately target Apple to show they're charging more money than they should be. What's so unusual about a company charging more money than the component costs?

     Imagine if humans were valued by the cost of their organic components. They'd all be worth about $30 and not the millions of dollars some people make. I just don't get why Apple is always being targeted for component cost breakdowns.  You'd almost think Apple was forcing people in need to pay for their products, but that's certainly not the case.  Most consumers don't look at a product as individual parts because that's not how they're using the product.  It's used as a whole and that's what they're paying for.  This goes for all companies and not just Apple.  I'm saying if they're going to tear down all products from all companies for component costs then that's fair enough.  Stop targeting just one company.  Let all companies be fair game for the critics.

    Even though Apple is accused of ripping off consumers, Wall Street still isn't happy with Apple's profit margins and they've said that many times.  So what's going on here? Does Wall Street want Apple to make more than excessive profit margins or not?  Is every company making high-profit margins being accused of taking unfair advantage of consumers?
    edited September 2017
  • Reply 17 of 22
    mike1 said:
    zomp said:
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    That's not how margin works. First, "design and development, stock people, rent and so much more" are not included in the margin calculation or the landed cost of the product. Margin of the phone is not affected at all if they sell fewer phones. Apple's overall profit would be, of course, but the amount of gross profit per phone stays the same unless they lower the price.
    Sales volume typically doesn't affect gross margins as much as it affects operating margins, but it can affect gross margins. Apple has commented numerous times on leverage from greater sales volume affecting gross margins.
  • Reply 18 of 22

    sog35 said:
    jkichline said:
    It’s well known in manufacturing that the cost of the product should be about 1/3 and no more than 1/2 the cost of the finished product. Sounds like Apple follows this pattern. Keep in mind they must pay for R+D, tooling, development, logistics, support, marketing, internationalization, shipping, support, customer service, insurances, trade, lobbying, etc...

    Apple discloses gross margin.  Its at 40% company wide.

    So the iPhone is probably at about 50% gross margin.
    It's probably more like 45% for iPhones. The math doesn't work for it to be 50% unless we believe that the aggregate gross margin for iPads, Macs and Other Products is in single digits.
  • Reply 19 of 22
    mike1 said:
    zomp said:
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    That's not how margin works. First, "design and development, stock people, rent and so much more" are not included in the margin calculation or the landed cost of the product. Margin of the phone is not affected at all if they sell fewer phones. Apple's overall profit would be, of course, but the amount of gross profit per phone stays the same unless they lower the price.

    carnegie said:
    mike1 said:
    zomp said:
    Of course - that’s the cost of the parts, period!!
    now, let’s include assembly and shipping costs, packaging, duty, fedex to send it here, design and development, stock people, rent and so much more.  Their margins are high because they sell a lot of phones. If their sales are 50%, the margins will fall. 
    As for me, I feel very lucky that some spent a billion dollars to develop a 800.00 phone for me and gives me free updates, free cloud account, very few reasons to ask for support, and a product which is always improving in so many ways without raising the price too much. 
    Compared to a PC, this phone is a bargin at twice the price. 
    That's not how margin works. First, "design and development, stock people, rent and so much more" are not included in the margin calculation or the landed cost of the product. Margin of the phone is not affected at all if they sell fewer phones. Apple's overall profit would be, of course, but the amount of gross profit per phone stays the same unless they lower the price.
    Sales volume typically doesn't affect gross margins as much as it affects operating margins, but it can affect gross margins. Apple has commented numerous times on leverage from greater sales volume affecting gross margins.
    Speaking as a (former) manager of cost accounting:
    Both are correct!

    Gross Margin is typically calculated based on "variable, direct costs" that remain constant on a unit basis.
    BUT, that only holds true within a given range of volume: 
    If you change volume substantially, then the assumptions behind those costs change as well.   A good example is the price of raw materials:   if you buy substantially less then you could lose a volume discount and the cost/unit increases.   Or, another trickier example is the the cost of first line supervision that changes with volume but tends to change in chunks and steps instead of being tightly tied to unit volume.
  • Reply 20 of 22
    Apple screen cost should be much lower since they buy the same LCD screen for 6,6S,7, 8 back in 2013-2017!
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