The iPhone 7 is more expensive to manufacture as compared to its predecessor but it still costs only a third of its total sale price for Apple Inc. (AAPL) to make the phone.
Quartz reported Tuesday that market research firm IHS Markit performed a teardown of the device and rolled up component costs to come up with a Bill of Materials for the phone. The firm calculated that the iPhone 7 cost $219.80 in BOM costs and tacked an additional $5 as labor costs to come up with a total manufacturing cost of $224.80 for the phone. The phone retails for $649 in its starter version. For context, the same firm had calculated a total manufacturing cost of between $200 and $247 for iPhone 6 last year.
With a manufacturing cost that is slightly higher than that of the original iPhone, the iPhone 7 is the most expensive flagship smartphone that Apple has ever built. The most expensive phone, however, is the iPhone 6S Plus, built by the company last year. Andrew Rassweller, senior director of cost benchmarking services for the firm, said that material costs for the latest phone were higher as compared to its predecessors and aligned with the costs for Apple competitor, Samsung Electronics Co. Ltd. (SNSSF). (See also: The Cost Of Making An iPhone).
Based on IHS’ teardown, the most expensive component within the phone is the Display, which costs $43. The baseband system (which is used to receive and transmit signals over the network) and the company’s latest A10 processor are the second and third most expensive components within the iPhone 7 and cost $33.90 and $26.90. Discounting the Glue Logic (which cost $1.30) used to connect the different components together, the iPhone 7’s batteries are its cheapest components with an average cost of $2.50 per phone. (See also: iPhone 7 Plus Initial Stock Sold Out).
The increase in manufacturing costs is a function of upgrades in the phone’s capabilities. For example, the A8 processor, which was used in the iPhone 6S, cost $20. As detailed earlier, the A10 processor, which is faster and is enables game playing on iPhones, cost $33.90. Similarly, camera costs for the iPhone 6S plus were $12.50. The iPhone 7’s dual camera system has bumped up camera costs to $19.90.
But a phone’s manufacturing costs are important only so far as they affect the company’s profit margins on the device. The first iPhone had margins of 55%. But, Apple’s margins have declined with the device’s latest installments. The iPhone SE, which was released earlier this year, had an estimated gross margin of between 30% to 35% while the iPhone 6 and iPhone 6s came with margins of between 40% and 45%, according to Toni Sacconaghi, analyst from research firm Bernstein.