In 2017, the top-selling phone in the world was the iPhone 7 from Apple Inc. (NASDAQ: AAPL). From our culture to the economy, this small, handheld device has made a splash — and is likely to continue doing so. Apple unveiled the iPhone 8 on September 12, 2018, while the iPhone X saw its international launch less than two months later on November 3. Although market analysts predicted that the iPhone X's $999 price tag would deter customers, Apple CEO Tim Cook has said the iPhone X has been Apple’s best-selling model for every week since it launched.
But Apple's greatest gift is also its greatest curse. The iPhone now makes up approximately 60% of Apple's total revenue, meaning the company is at the whim of the mobile smartphone market. According to HSBC, Apple's iPhone segment is slowing and the company has shed more than $130 billion from the historic $1 trillion market capitalization that it maintained from August to November of 2018.
Until Apple develops "the next big thing," it's important to understand how the company has built its business model around iPhone. Let's take a look at how Apple makes and sells its mobile products.
How Does the iPhone Make Money?
Apple reported $229.2 billion in revenue during fiscal year 2017, roughly a 6.3% increase from $215.6 billion in fiscal 2016. In 2015, Apple announced its highest annual revenue on record of $233.72 billion. Over $150 billion of that year's revenue came from iPhone sales, meaning the company's phone segment was responsible for around 70% of the company's total global revenue. iPhone sales reached 216 million units in 2017, up from 150 million in 2013 and 40 million in 2010. Apple is one of the most valuable companies to date, yet nearly two-thirds of its revenue depends on one product line. In the future, we may see Apple diversify its product line to include newer models of accessories like the Apple AirPods, augmented reality glasses, autonomous vehicles, and health services.
What Does it Cost to Build an iPhone?
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 iPhone 8 and iPhone 8 Plus are priced at $699 and $799, respectively — and that number is only expected to rise as functionality and storage expand. IHS Markit, a tech research company, put the building cost of an iPhone 8 Plus at $288.08 before marketing costs and research. 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
Are iPhones Responsible for 10% of U.S. Economic Growth?
In early 2015, it was alleged that Apple's iPhone 6 sales were responsible for 10% of all U.S. economic growth, as reported by Forbes.
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 a domestic product from iPhone sales, since domestic product tries to capture value added, not just incoming dollars. Even if that statistic is wrong (which Forbes admits, it probably is), 10% is still an interesting figure to express how huge Apple's sales numbers were—even back in 2016.
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.