Page 2 : Why Apple iPhones Are So Expensive

Why Apple iPhones Are So Expensive

Many people consider Apple elitist for selling the iPhone at very high prices, and there’s no doubt that they have the highest profit margin in the industry. However, their profit margin isn’t an accurate reflection of their nett profit per unit.

What most people forget is that the price of each iPhone includes a lot of ancillary costs, so comparing the profit margin of Apple iPhones vs. Android smartphones is like comparing apples to oranges (pun intended).

1. Apple iOS And Services Are Not Free

Android manufacturers can get away with low margins and therefore, lower prices, because Google provides the Android OS free of charge. On top of that, Google finances the infrastructure for free services that they provide to the Android platform, like Google Hangout and Google Drive.

With the exception of any custom software or services provided by the Android smartphone manufacturer, everything on the Android platform is being financed and maintained by Google.

Apple, on the other hand, has development teams working on the iOS operating system, as well as supporting software and services like iTunes, the App Store, iMessage, FaceTime and iCloud. They also build and maintain their own infrastructure to support those services.

All that comes at significant cost. Apple’s massive 500,000 sf data center in Maiden, North Carolina, for example, costs a whooping US$ 1 billion to build.

2. Apple Uses Their Own Processors

Apple designs their own processors for the iPhone – a cost that no Android manufacturer has to bear. On top of that, their processors cost more to make because they have a lower production run than the Qualcomm or MediaTek processors that most Android devices use.

3. They Just Cost More To Produce

All-in-all, the costs of the parts used to make an iPhone are consistently much higher than that of an Android phone. Here’s what research firm HIS calculated as the cost of manufacturing the iPhone 6 :

Apple iPhone 6 with 16GB of built-in memory costs $200 to build in parts and labor, while a 128GB model requires $247 to put together. The iPhone 6 Plus production costs on the other hand, range between $216 for a 16GB model and $263 for the 128GB version.

The most expensive component in the iPhone 6 and iPhone 6 Plus is their display. Made by LG Display and Japan Display, the component costs $45 for the iPhone 6, and $52.50 for the iPhone 6 Plus. Corning Gorilla Glass 3 covers the screen of both models.

Apple’s 20nm A8 processor is made by TSMC and, combined with an attached co-processor, costs about $20. NXP Semiconductors provides the NFC chip for the iPhone 6 range. Combined with the rest of its built-in sensors, it costs $22 for both devices.

As you can see, the production cost of the Apple iPhone 6 is higher than what some Android smartphones are selling for, even if those Android smartphones have similar or even better specifications on paper. This is why the iPhone will always be more expensive than comparable Android smartphones, even if Apple somehow sees it fit to sell it at cost.

If you tack on their substantial ancillary costs, you can see why Apple has to sell their iPhones at a premium. The research firm HIS calculated the iPhone 6‘s profit margin as 69%, but that does not include ancillary costs. Apple’s nett profit is certainly much lower once you factor everything in, albeit still much higher than the industry norm.

 

Does This Mean That Apple iPhones Are Better?

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No. I’ve said it many times before, and I will say it again. Both platforms have their pros and cons, and they are getting closer in capability as they leapfrog each other in features. Whatever new idea or feature that’s introduced in one platform will eventually make it to the other platform, so it would be stupid to insist that one platform is significantly superior to the other.

It is this convergence of features and capability that will eventually limit Apple’s reach. If you can get a good Android smartphone with all of the key features you need at a much lower cost, it will be harder for many users to justify paying a premium for the Apple experience.

Ultimately, it all depends on the kind of user you are, and how much you are willing to pay. You won’t go wrong with either platform, and don’t let anyone tell you otherwise. Just because Apple iPhones are so expensive does not mean they are better than Android smartphones. But it doesn’t mean you are not getting your money’s worth either.

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