Why does the iPhone X cost so much more?

Why does the iPhone X cost so much more?
The new bells and whistles on the latest iPhone help explain the price increase over previous models.

The components in Apple Inc.’s new iPhone X cost $115 more than the guts of the iPhone 8 because of its pricey new screen and facial recognition scanner, according to an analysis by IHS Markit Inc.

The total bill of materials for the base model iPhone X with 64 gigabytes of storage is $370.25, according to IHS’s report, excluding costs like research and development, manufacturing and software. IHS conducted a similar analysis earlier this year of the iPhone 8 base model and found a bill of materials of $255.16.

The iPhone X includes a stainless-steel case, a 3-D facial recognition system on the front and a 5.8-inch OLED screen that aren’t part of the iPhone 8. These components probably drove the extra costs of the company’s 10th anniversary flagship model.

The OLED display costs the Cupertino, California, company $110 per unit, compared with $52.50 for the 5.5-inch iPhone 8 Plus screen, which uses an older technology, according to IHS. Samsung Electronics Co. currently supplies OLED panels exclusively to Apple, but the South Korean company pays about $85 per screen for its own Galaxy S8 phone. That device has the same-sized screen as the iPhone X, but with a higher resolution.

“Apple is definitely paying a premium for OLED technology,” said Wayne Lam, an analyst IHS. “Apple is locked into one supplier and Samsung can dictate its own price.”

Among the suppliers of the iPhone X’s component parts, in addition to Samsung, are Toshiba Corp., Skyworks Solutions Inc., Texas Instruments Inc. and chipmakers Broadcom Inc., Qualcomm Inc., Intel Corp. and NXP Semiconductors NV, according to an analysis last week by IFixit.

Costs go up, margins stay flat

While the iPhone X costs more than the iPhone 8, Lam estimates that both devices generate about the same gross profit margins for Apple. The bill of materials for the two phones equals about 37 percent of the consumer prices. The iPhone 8 costs $699, while the iPhone X costs $999. Apple’s final gross margins are lower because of manufacturing and research-and-development costs, according to Lam.

Apple declined to comment on the materials analysis. Apple Chief Executive Officer Tim Cook commented on component breakdowns in 2015 during an earnings call by stating he has “never seen one that is anywhere close to being accurate.”

Face ID, the iPhone X’s standout addition, also contributes to the higher cost of the device. The True Depth Camera system, which includes modules such as an infrared camera and a dot projector for sensing the three-dimensional structure of a person’s face, costs Apple $16.70 per unit. That means Face ID costs Apple three times as much as the Touch ID sensor costs Apple in the iPhone 8, Lam said. However, Apple’s cost for fingerprint scanners has come down since it first debuted in the iPhone 5s in 2013, suggesting the costs for Face ID could decrease over time.

The iPhone X’s revamped design also contributes to overall costs. While the enclosure for the iPhone 8 Plus costs about $51, the iPhone X’s casing costs about $10 more due to its more complex stainless-steel frame, Lam said. The iPhone 8 Plus utilizes an aluminum frame.

(Contact the reporter on this story, Mark Gurman.)

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