iPhone 8 Could Be More Lucrative For Apple Than The iPhone X

by Trefis Team
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Last week, Apple (NASDAQ:AAPL) launched a trio of new iPhones called iPhone 8 and 8 Plus – essentially upgraded versions of last year’s iPhone 7, priced starting at $700 and $800 respectively – as well as an all-new smartphone called the iPhone X, priced from $1,000 onwards. While it might appear to be in Apple’s best interest to maximize sales of the iPhone X, given its higher price points, the iPhone 8 could actually be the most lucrative phone in the company’s lineup currently. Below we take a look at some reasons why Apple could look to steer customers towards the iPhone 8.

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Gross Margins On iPhone 8 Should Be Thicker

There is a strong possibility that margins on the iPhone 8 will be significantly higher than margins on iPhone X, despite the fact that the X is priced at a premium of about $300. Apple is utilizing the iPhone 6’s basic design for the fourth consecutive year on the iPhone 8 (albeit with a glass back) implying that manufacturing yields on the device should be good, with casing related costs kept to a minimum. Moreover, Apple has actually bumped up base pricing by about $50, despite the fact that the upgrades over the iPhone 7 are fairly incremental (more storage, better display, camera enhancements). If we assume that the components cost for iPhone 8 is about the same as the iPhone 7, which cost about $248, the bill of materials cost as a percentage of retail price would stand at ~35%.  The costs of manufacturing the iPhone X, on the other hand, are expected to be significantly higher, as Apple is using many new and high-end components such as OLED displays and depth-sensing cameras. Per Susquehanna International Group, the components on the device could cost Apple about $581.  This implies that components costs as a percentage of the devices price would come in at 58%, translating into thinner margins versus prior iPhones.

Apple Will Have Much Better Supply Of The iPhone 8

Apple also appears to have much better supply, relative to demand, of the iPhone 8 compared to previous iterations of the iPhone. It typically takes multiple weeks to ship new iPhone models after they are made available for pre-order, as demand outstrips supply. However, waiting times for the new iPhone 8 are significantly shorter, with most models shipping in under a week. The iPhone X, on the other hand, is likely to remain significantly undersupplied, even after its delayed launch date (November 3), as Apple’s contract manufacturers iron out early manufacturing issues and improve yields. KGI Securities estimates that Apple’s suppliers are currently only able to build about 10k units of the iPhone X per day.

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