iPhone X Is More Lucrative To Apple Than Previously Estimated

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Research firm IHS recently published its preliminary bill of materials analysis for Apple‘s (NASDAQ:AAPL) new flagship iPhone X, estimating that the 64 GB version of the smartphone costs about $370 to build. This is well below previous estimates, which pegged potential costs at as much as $581.

Trefis has a $164 price estimate for Apple, which is below the current market price.

See our complete analysis for Apple here

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With the scope for functionality-based innovation slowing down, Apple has had to equip its recent devices with more niche and expensive technologies in order to differentiate itself (3D-Touch, Taptic engines, dual cameras). Now, with the iPhone X, Apple is using OLED displays (a first on an iPhone) and depth-sensing cameras, which enable the device’s face-based unlocking feature. While these components make the iPhone X the most expensive smartphone Apple has built, margins should be roughly in line with last year’s iPhones, considering the starting price of $1,000. This implies that component costs as a percentage of the device’s retail price would stand at 37%, compared to about 35% for the iPhone 7 and 36% for the iPhone 8 Plus.  Margins on the 256GB model could also be similar, despite the recent uptick in NAND prices, as Apple has priced the device at a $150 premium versus the base model, instead of its typical $100 increment. The iPhone X’s higher starting price, coupled with Apple’s decision to offer a wider portfolio of smartphones (iPhone 8 and three legacy devices) will drive the company’s iPhone revenues and dollar margins to all-time highs over 2018.

Although Apple has dismissed the bill of material analysis as being an inaccurate representation of the cost it incurs in producing its smartphone, we believe that year-over-year comparisons (from the same research firm) do provide a sense of how Apple’s gross margins could trend. For example, Apple’s overall gross margins during the iPhone 6 cycle (FY’15) stood at 40.1%, while the gross margins during the iPhone 7 cycle (FY’17) stood at 38.5%, partly reflecting the higher costs manufacturing the device.

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