Dissecting Apple's September 2017 product launch for business pros
So, after months of speculation, leaks, pundit prognostications, and endless mockups and fan art, Apple has finally unveiled the iPhone X, and as we expected, it comes with a monster price tag.
Must read : Buying a new iPhone just got more expensive
Pretty much in line with the rumors, it turns out that the iPhone X starts at $999 for the 64GB version, with the price rising to $1,149 for those who want 256GB of storage.
Is this an outrageous price for a smartphone?
A lot of that depends on how you feel about spending $1,000 of a smartphone. For some, it's a crazy price, for others, it's a price worth paying for a device that they're going to be using essentially 24/7/365.
It all depends on how you feel about parting with $1,000 for a phone.
But what about the cost of the iPhone X from the standpoint of materials and components? Is the price tag one that can be justified?
Before we go any further, let me remind you that before the unveiling of the iPhone X that an iPhone 7 Plus with 256GB of storage would have set you back $969.
Just with that bit of information, all of a sudden that $1,000+ price tag doesn't seem so crazy.
We've yet to see a teardown of the iPhone X, so it's hard to tell what exactly goes into the making of one, but we can make some extrapolations based on what we already know.
First off, that 5.8-inch 2436-by-1125 OLED display won't come cheap. In fact, it's going to be without a doubt the most expensive part of the iPhone X, because the display on a regular LED display iPhone is the most expensive part of that device.
Taking a look at the teardown bill of materials (BOM) for some flagship devices will give us some direction. A look through the BOMs for the iPhone 7 and the Samsung Galaxy S8 will show you that the bulk of the cost of a smartphone is made up of the display, the mainboard, and the camera module.
The 5.77-inch AMOLED display in the Samsung Galaxy S8 alone costs a whopping $85, compared to just $39 for LED display found in the iPhone 7.
Given that the specs of the display are higher than that found in the Samsung Galaxy S8, that Apple is having to rely on Samsung to manufacture the OLED display for the iPhone X, and that yields are poor, the display alone could cost anywhere between $100 and $120.
Also, bear in mind that the BOM costs are only a fraction of the retail price of the handsets, and that R&D and all the other myriad costs associated with bringing a product to market aren't included in this costing.
It's also worth remembering that the BOM for Apple products usually fall around a third of the retail price. The total BOM and manufacturing cost of the iPhone 7 comes to $220, while the handset retails for $649, so in reality, we only need to bump the BOM price up to around $330 to account for a $1,000 price tag, and given the cost of that OLED display and the costs of all that hardware associated with the Face ID technology, it's not hard to push the BOM up and over the $330 mark.
Another thing to bear in mind is that Apple has no problem charging customers an arm and a leg for things that at a production level only cost a few dollars. Thirty-two gigabytes of storage and 2GB of RAM in the base iPhone 7 costs Apple under $17, and while Apple charges an extra $100 for a storage bump to 128GB, that's not costing Apple anywhere near that price (the actual price is likely under $20).
But is it possible to bring the bill of materials up to a point where Apple could charge $1,000+ for the iPhone X?
Yes, it is.
Anticipating the question on how Apple could justify charging $1,000 for a smartphone with a BOM of $330, we come back to the fact that the price doesn't include costs such as R&D (the iPhone X is a pretty a radical departure from the existing line up, both in terms of cosmetic appearance and user experience, and that sort of thing costs money), marketing, stores, and so on.
Based on past figures and estimates, I'd say that these costs would add some $330 to the BOM price.
But that does mean Apple would be making around $330 per iPhone 8 sold. Which isn't bad at all.
So, while only you can decide whether $1,000 is outrageous for a smartphone, from a technical point of view, it's certainly justifiable.