According to a report by IHS Markit, the cost to build the 32 GB model of the iPhone 7 comes to a total of $224.80, a figure that is $36.89 higher compared with the cost to build the smartphone's predecessor, the iPhone 6s.
The cost of building an iPhone 7, which is priced at $649, can be broken down into $219.80 for the smartphone's components and $5 in basic manufacturing costs.
IHS Markit senior director of cost benchmarking services Andrew Rassweiler stated that the total bill of materials for the iPhone 7 is comparable to that of the flagship smartphones of Apple competitor Samsung, with higher costs compared with previous models. However, Apple still has a bigger profit margin compared to Samsung, despite the high cost of materials.
The higher cost to build an iPhone 7 compared with the iPhone 6s could come as a surprise to some, as Apple kept the overall physical design of the smartphone while removing the 3.5 millimeter headphone jack. However, there are several factors that contributed to the increase in the cost to build the smartphone.
The decision of Apple to double the base storage of the iPhone 7 to 32 GB from the 16 GB base model of the iPhone 6s is one of the main contributors to the higher cost. The 32 GB NAND chip, along with 2 GB of SDRAM from Samsung, has an estimated cost of $16.40.
The most expensive component of the iPhone 7 remains to be the display, which carries a cost of $43, followed by the Intel baseband chip that costs $33.90. Other examples of components that have estimated costs include the A10 Fusion system-on-chip, designed by Apple but produced by TSMC, for $26.90, and the two camera modules of the iPhone 7 that are said to have a combined cost of $19.90.
The higher total cost to build the iPhone 7 compared with the iPhone 6s indicates that the smartphone is cutting into the profit margins of Apple, which is said to be among the highest ones in the consumer electronics industry. This is especially true with the fact that despite doubling the storage options of the iPhone 7 compared with the iPhone 6s, the price tags of the base models are similar upon launch.
IHS Markit has not yet carried out a manufacturing cost analysis for the bigger counterpart of the iPhone 7, the iPhone 7 Plus.
The report on the cost to build the iPhone 7, however, is still in its preliminary stage, with IHS Markit possibly changing the figures upon the finalization of the review within the year.
Apple stands to make good profit from the smartphone, as analysts expect iPhone 7 sales figures to reach 100 million units within the year.