Apple (AAPL) is one of the most popular companies in the world and produces one of the most ubiquitous smartphones. Despite the iPhone being one of the most sought after products in the world, as of 2019, Apple was third in market share for smartphones, behind Samsung and Huawei.

Apple controls 14.5% of the global smartphone market share, while Samsung controls 21.8% and Huawei controls 17.6%. That being said, in terms of profits from smartphones, Apple is the leader. The company took 66% of the industry's profits and 32% of revenue in 2019.

It seems that the company must be making a sizable markup if it's the leader in profits but third in sales. Let's find out how much it costs to make this iconic product.

Global Mobile Handset Operating Profit
Source: https://www.counterpointresearch.com/apple-continues-lead-global-handset-industry-profit-share/

iPhone 11 Pro Max

The current and most expensive iPhone is the iPhone 11 pro max, released in late 2019. Depending on the storage size, the cost of the phone ranges from $1,099 to $1,449. It's quite a hefty price tag, especially when it's estimated that the actual cost of all the components to make the phone amounts to approximately $490.50.

Cost Breakdown

The breakdown of the cost of the components of the phone is as follows:

  • Screen: $66.50
  • Battery: $10.50
  • Triple Camera: $73.50
  • Processor, Modems, and Memory: $159
  • Sensors, Holding Material, Assembly, and Other: $181

It's important to note that this cost does not include research and development (R&D) or marketing, which would increase the price of the phone.

Labor Costs

The iPhone is primarily assembled in China by Taiwanese companies, such as Foxconn. The starting wage for an iPhone worker in China is $3.15 per hour. Much lower than the minimum wage in the U.S., which is $7.25 per hour. In 2018, it was quoted that employees at Foxconn make around $300 a month.

According to Tim Cook, the CEO of Apple, the reason to build in China is not because of the lower labor costs. If this were the case, Apple could make its phones in even cheaper locations. The main reason, according to Cook, is the skill required in tooling engineering. He claims that the specific skill set is no longer available in the U.S., but in China the expertise is prevalent.

In addition, logistically, China makes the most sense to ship a product around the world as the country has seven of the world's largest 10 ports. If Apple were to build the iPhone in the U.S., it would only be able to build a small amount a year at a significantly higher cost.

Labor Conditions

In the early days of iPhone production, there were reports that labor conditions for workers were awful, however, this seems to have improved over time. According to some employees at Foxconn, the conditions are no worse when compared to other factories in China, and sometimes better. Outside of the big cities in China, most of the country is still underdeveloped and the cost of living is low, resulting in wages that may appear low when compared to Western society. The issue, really then, is not the wages, but the conditions employees endure to earn those wages.

The Bottom Line

Apple is a very successful company, and as consumers, we pay a premium price for the products the company makes. Some people purchase Apple products to become part of the 'trendy' Apple brand. However, for Apple to maintain its high profits and low manufacturing costs, the company will continue to manufacture its phones in China, as it looks for other low-cost locations, such as India and Vietnam.