In 2017, the top-selling phone in the world was the iPhone 7 from Apple Inc. (NASDAQ: AAPL), and this small handheld device has had a large impact on culture as well as the economy. Apple has recently unveiled their newest models, the iPhone 8 and X. Customers eagerly await the official launch of the iPhone X, in stores on Nov. 3 with bookings for the device starting Oct. 27, and the demand has sent the company's share price surging. Let us take a look at the economics of making and selling such an influential product.

Impact on Apple's Bottom Line

Apple reported $215.6 billion in revenue and $45.7 billion in net income during fiscal year 2016. The company was down year-over-year, as revenues and net income in 2015 were $233.7 billion and $53.4 billion, respectively. 

Total iPhone sales account for a whopping 63% of all Apple revenue. Apple is one of the most valuable companies in the history of the world, yet nearly two-thirds of its revenue depends on one product line. IPhone sales are historically resilient, partially because Apple makes it difficult for customers to adapt to alternative operating systems.

iPhone Component Pricing: What It Costs to Build

Apple's sourcing model is one of the reasons it generates astronomical profit margins. The company makes very little of its own products. Instead, components and materials are gathered from around the globe and sometimes even from direct competitors, such as Samsung. This significantly lowers capital expenses for Apple, saves the consumer a bit of money and lets shareholders benefit from the difference.

The typical iPhone model sold for $645 in 2016. That number is sure to rise, with the higher priced iPhone 8 and iPhone X. Estimates by IHS Markit — a tech research company — put the building cost of an iPhone 8 Plus at $288.08, not including marketing costs, research and so on. Here's the breakdown:

  • Apps Processor — $27.50
  • Baseband — $33.90
  • RF / PA — $24.60
  • Battery — $4.45
  • BT / WLAN — $7.35
  • Cameras — $32.50
  • Display — $52.50
  • (electro)mechanicals — $50.95
  • Memory — $31.20
  • Power Management — $16.05
  • User Interface  — $11.28
  • Sensors -- $6.65 
  • Box contents (headset, lightning cable etc.)  — $11.80

Economics of iPhone Carriers

The most basic models of the iPhone 8 and iPhone 8 Plus are priced at $699 to $799, and devices with more memory could cross the $900 mark. With this solid price tag, customers could opt for carrier-subsidized deals from companies such as Verizon and AT&T. Installment plans ranging from $20-30 per month are common, and some carriers will give (or lease) customers an extra phone for free, probably because the iPhone X is a few weeks away from stores. 

iPhones and Economic Growth

Around the start of 2015, it was reported that Apple's iPhone 6 sales were responsible for 10% of all U.S. economic growth. Several major outlets reported this in one form or another, including Forbes and The New York Times. (See also: If Apple Were A Country)

The claim featured a 1.9 to 2.5% growth rate for the U.S. economy between 2014 and the first quarter of 2015. Based on pure mathematical estimates of the productive value of all final American products, as well as the revenue generated from iPhone 6 sales, the Apple device was seemingly responsible for 0.25% or 0.3% of the change in the United States' GDP. On the surface, this meant iPhone 6 sales were 10 to 15% of conventional economic growth.

GDP is actually a very rough, overly simplistic and problematic estimate of growth. Moreover, revenue from iPhone sales is not the same as domestic product from iPhone sales, since domestic product tries to capture value added, not just incoming dollars. Even if the statistic is wrong (it probably is), it is still an interesting way to express how huge Apple's sales numbers were.

More recently, Apple took it upon itself to illustrate its effect on the economy and the job market. It claims to have created nearly 2 million jobs across all 50 states, most of which are attributable to the "App Store ecosystem." The company based its claims on research by Dr. Michael Mandel from the Progressive Policy Institute. See the research here.

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