Why the Apple iPhone 11 Pro Max is so expensive?
It is surely a question that might have crossed the minds of most people either using an iPhone or thinking about buying one. Its exorbitant pricing has been the point of discussion many a time over the years. Additionally, a lot of people have also tried finding an answer to this question. The answer, probably, lies under the hood of the iPhone itself.
Websites like iFixit and Techinsights perform teardown analysis of the iPhones by analysing the cost of each component going into the device, individually. The best and the most relative way of answering the question above is by taking an example of the recently launched iPhone 11 Pro Max.
Apple iPhone 11 Pro Max Cost: Teardown
TechInsights and NBC News collaborated to perform a teardown analysis to find the build cost of iPhone 11 Pro Max. The entry-level iPhone 11 Pro Max has a retail price of $1,099. If we go straight into the components, the first one is the 6.5-inch screen. It costs Apple about $66.50 per unit – the most expensive component in iPhone 11 Pro Max. The Samsung battery unit inside the iPhone 11 Pro Max costs about $10.50. The much talked about triple camera set-up costs even more than the screen, amounting to $73.50. Some of the equipment inside the phone – including the likes of the processor, circuit boards, modem and the memory – cost around $159. The rest of the sensors, wires, PCBs cost around $181.
When isolated, the components should cost a sum total of $490.50 per device. That is quite far away from the retail price of the device at $1,099. You may be thinking that Apple must be minting billions by selling iPhones with such margin. You are highly mistaken.
We should bear in mind that these are not the only costs that the company incurs per device. There is also a lot of money spent on the development and maintenance of software of the device, in addition to manufacturing and assembly costs. On top of everything sits their marketing cost.
But has it always been the case, even with the older iPhones?
Did Apple Profit More With the Older iPhones?
This question can be effectively answered by taking two examples. One of them will be from the recent past, while the other will be from 3-4 years further back. The ‘anniversary‘ iPhone, the iPhone X, was priced at $999 initially before getting discontinued a year later. But when the teardown analysis was conducted for the same, the sum total of their costs came up to be $395.44. That accounts for roughly 39.5% of the retail price. To put things into perspective, the component cost of the iPhone 11 Pro Max amounts to 44.6% of the retail price.
Let us go back a couple of years more, back to 2014 and back to the launch of the iPhone 6. It had a retail price of $649. But when the cost analysis was conducted of its components along with the manufacturing costs, it rounded off cost the company about $200.10 only. That is only 30.8% of the total retail cost. And mind you that unlike the recent analysis, this was did consider the manufacturing cost.
So is Apple facing a declining profit from its iPhones over the years?
Other Sources of Income
While the cost of the components is climbing up the percentages of the retail pricing of the iPhone, it doesn’t necessarily mean that the company is enduring more losses. One major reason for the same is a large amount of revenue generated from its services alone. In Q2 2019, services amounted for 20% of Apple’s total revenue, rising from 16% a year before. This means that Apple is not overly reliant on the sales of its iPhones alone. This, in turn, allows Apple to price its iPhones a little more competitively, hence explaining the rise in the ratio of the cost of components to the retail price of the device. If they didn’t generate this much revenue through services, it is very much possible that the iPhones would be even more exorbitantly priced.