Parts for the iPhone 14 are 20% more expensive than previous models, and profit margins are likely to be lower
Oct 08, 2022| Parts for the iPhone 14 are 20% more expensive than previous models, and profit margins are likely to be lower
A dismantling of Apple's flagship model in the iPhone 14 series shows that production costs have soared by about 20% from previous models to an all-time high, Nikkei Asia reported. The iPhone 14 lacks new features, but still reflects Apple's strategy of showcasing ultra-high-performance devices, such as proprietary 4-nanometer chips and new camera components.
The company hasn't raised prices for its latest models in the U.S. and some other markets, but higher production costs mean its profit margins may have shrunk.
Minatake Kashio of Tokyo-based research firm Fomalhaut Techno Solutions said Apple "clearly has no choice but to adopt a strategy of installing high-performance devices to differentiate itself because it cannot compete on new features".
Fomalhaut estimates that the iPhone 14 Pro Max costs $501 per part to produce, more than $60 more than the iPhone 13 Pro Max, which went on sale last year. Since its launch in 2018, component prices for the high-end Max models have hovered between $400 and $450, while production costs for the latest models have risen sharply by more than $60. As a result, the cost of the iPhone Pro 14 Max is the highest in terms of both total cost and increase since 2018.
Apple has raised the price of its iPhone 14 series in Japan, citing the weakening yen. In the U.S., however, the iPhone 14 Pro Max, with the smallest storage capacity, costs $1,099 -- on par with its 2018 XS Max counterpart. The company appears to have decided to absorb the extra production costs rather than pass them on to consumers.
The higher production costs are mainly due to the A16 Bionic chip used in the iPhone 14 Pro and Pro Max models. The proprietary chip costs $110, more than 2.4 times as much as the A15 version used in the iPhone 13 Pro Max, which was released last year. TSMC and South Korea's Samsung Electronics are the only companies that can mass-produce 4-nanometer chips.
The iPhone 14 also comes with new camera components, including SONY Group's CMOS image sensor. These sensors are 30 percent larger than previous models and cost about 50 percent more, at $15.
Apple already outsources most of its iPhone production to China. But it is now diversifying into other places, such as India and Southeast Asia, amid trade tensions between the United States and China. Apple's review of its supply chain for electronics and other components could change its procurement strategy going forward.
