Apple Prices the iPhone 6S 3x The Manufacturing Cost: Will It Sustain Long Enough ?

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The latest iteration of the iPhone, the iPhone 6S and the iPhone 6S Plus has been flying off the shelves after its sales kicked off late last month. Apple Inc. (NASDAQ:AAPL) has declared that the new iPhones have set a new record by selling no less than 13 million devices in the first 3 days of its availability on major retail channels. With more countries scheduled to commence sales from October 9th, the latest iPhone is, without a single doubt, an enormous commercial success. But just how much profit is Apple gleaning from each iPhone sales? Quite a lot, if latest reports from IHS Technology are to be believed.

The only thing that’s changed is everything“- Apple’s latest marketing tag line for the iPhone 6S and 6S Plus; certainly seems to have struck a chord with the consumers as they’ve been rushing to get their hands on the latest offering from the company. Historically though, the 6S has been mostly an incremental update. And going by our previous article where we outlined people’s expectations from the new iPhone, it would seem that Apple has been off the mark by quite some distance. So, is the marketing hype real and has Apple invested a lot more in the iPhone 6S lineup than previous iPhones? Or is it more of the clever advertising that we seem to have come to expect from Apple in recent years? Stick with us as we find out!

iPhone 6s and 6s Plus: What really has changed?

While ‘everything’ might be a bit of an exaggeration, quite a lot has changed from the iPhone 6 to the 6s. While not exactly apparent from the exterior which resembles the earlier generation iPhone 6 almost entirely; the internals have undergone a major upgrade. We will look through each one of the major new hardware changes that the iPhone has picked up in its latest generation.

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  • Screen: We now have a higher resolution screen on both the 6s and 6s Plus. Coupled with that we also have Apple’s new feature, Force Touch or 3D Touch that requires an extra layer to be added to the LCD panel to make it pressure sensitive.
  • Chasis: After the infamous bendgate incident of the iPhone 6 Plus, Apple decided to strengthen the body of the iPhone. It now comes with Aeroplane grade 7000 series Aluminium, making it a fair bit sturdier.
  • Camera: The camera sensor is now a more improved 12mp unit capable of 4k recording.
  • Processor: The new 6s and 6s Plus both tout the new A9 chips inside that have been topping charts in all smartphone performance benchmarks. Coupled with an extra gig of RAM, the computing package has received a major upgrade.

So how much did Apple spend on all the fancy new upgrades? Let’s find that out next.

And how much does iPhone 6S Plus cost?

This is the entire breakdown of the cost of the Apple iPhone 6Plus as predicted by IHS Technology on the basis of the tear down by iFixit. The total comes out to be 236$, which is a $20.40 from the earlier 6 plus. The retail pricing of the 6S Plus clocks in at $749 for the unlocked variant. But before we discuss Apple’s pricing strategy and its effectiveness, let’s quickly go through where the price increase has taken place.

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The most expensive part of the phone is its display, and the new 3D Touch feature is expected to have added another 10$ to the IPS LCD panels that are being sourced from Japan Display and LG Display. Apple also spent some more money in strengthening the body of the iPhone with 7000-grade aluminum for more durability. The teardown also features gaskets and a silicone covering on the main board and radios which would suggest that the new iPhone is water resistant to a greater extent.

Apple iPhones: Cost vs Price

While it may seem to be against the grain of the smartphone industry while prices of smartphones are going down; Apple will continue to make such a huge margin on their iPhones, it has to be said that Apple operates on a different business model. Instead of trying to reach everyone and be affordable as most Android OEMs aim to do, Apple has focussed on creating a brand around their premium devices. Fans of the iPhone will gobble up whatever the company makes and that is the one major advantage Apple has. In fact, in an age where eMMC storage costs around 35 cents a gigabyte, Apple charges a 100$ premium for a jump from 16 to 32GB in the iPhone lineups. For a $17 investment in hardware, Apple manages to snag a profit of $83!

Added to the fact that the new iPhone has 4K recording and the growing sizes of apps, it pretty much means that the 16Gb iPhone is not a viable option anymore.  So while Apple manages to lure the consumer in with the spec sheet, for the phone to be usable, they will have to shell out a 100$ more. But this isn’t something totally out of the blue either. Let’s take a look at Apple’s largest competitor in terms of volume in the smartphone space, Samsung and it’s flagship device the S6 edge! According to reports, it costs around 290$ to build and is priced at around 799$ for the 64 GB variant. That’s a pretty hefty margin of profit as well at 175.51%

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Deeper into the Numbers

So why did Apple reduce their profit margin and go for such significant upgrades in the iPhone 6S?

Let’s take a look at what IHS Senior Research Director Andrew Rassweiler has to say about the investments and the new iPhones in general:

 “They’re trying to make it tougher and longer-lasting to support this financing program,”

Yes, all the mechanical and structural improvements that have been seen in the iPhone 6s and 6s Plus might have been geared keeping the financing program in mind. For the first time, Apple has allowed its consumers to pay a fixed, no-interest monthly fee for a new iPhone, which they can trade in a year later for the next-generation device.

So while their immediate profit margin might have taken a hit, but they are preparing the groundwork for a robust secondary market for used devices. All the while keeping a profit margin of more than 200%.

Another thing that should also be mentioned is that a phone is not the sum of it’s components. There are many other things that go into the process of creating a phone like from RnD to software development all of which takes time and money. Also, there are other associated costs like stocking, shipping, advertising and all of this comes out from the ” 513$ profit margin ” on each device that Apple has!

Final Thoughts

So what does this translate into for the end consumer? Should you buy the iPhone 6 Plus? Yes, of course, you should. But didn’t we just show you how overpriced it was?

Well in reality that doesn’t change a thing. That’s because, unlike Android, Apple doesn’t give you the choice of a low-cost variant. And for many the experience and convenience of iOS is too hard to veer away from. So, Apple will continue on its merry way and in a world where the rest of the smartphone are engaged in a race to the bottom, they are the best-placed company to hold their high price points and still stay profitable. The future looks rosy for Apple as they are expected to hold 14.2% of the smartphone market come 2019.

So if you’re an Apple lover, rest assured! Your beloved company isn’t going under anytime soon. And you can go ahead grab that iPhone 6s, the premium you are paying is a toll for getting the flagship device. Just make sure you don’t get the 16GB one!

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