iPhone 15 Pro Models Expected to Be $100 to $200 More Expensive

[The-Real-Deal82]

Apple’s recent gross margin was about 45%. Their iPhone margins are definitely not more than this (I estimate it at around 30-35%), considering that this is mixed with their services revenue, which likely have higher margins. Stuff like Google’s payment to them is pure profit at this point as well.

According to a few reports a 14 Pro Max is sells for 69% more than it costs to make. Of course overheads have to be factored in but it’s insanely high. So £372 per unit, which is a lot lower than I originally thought. If it was 30% margin, each device would cost £839 to produce and for a company with the capacity and supply chain Apple have, that’s unrealistic. They operate on huge margins and price hikes are done simply for massive profits, not because they are offering us a fair deal.

 

[BigDO]

One has to be very naive to expect any price drops, anywhere in the world.

However I don’t see increases as impossible, especially in markets where most of the sales are carrier deals. Over a 24 month period, the increase to a monthly installment is marginal, and that’s what most people see and take into account when deciding to upgrade.

 

[The-Real-Deal82]

One has to be very naive to expect any price drops, anywhere in the world.

However I don’t see increases as impossible, especially in markets where most of the sales are carrier deals. Over a 24 month period, the increase to a monthly installment is marginal, and that’s what most people see and take into account when deciding to upgrade.

Marginal translates to £10 to £20 a month more by the time the carriers inflate their own costs though. It might be different in the US where it’s just a few dollars extra but it’s never like that elsewhere.

 

[Abazigal]

According to a few reports a 14 Pro Max is sells for 69% more than it costs to make. Of course overheads have to be factored in but it’s insanely high. So £372 per unit, which is a lot lower than I originally thought. If it was 30% margin, each device would cost £839 to produce and for a company with the capacity and supply chain Apple have, that’s unrealistic. They operate on huge margins and price hikes are done simply for massive profits, not because they are offering us a fair deal.

There’s also the cost of R&D, marketing, shipping, support, the services (maps and Siri, for example, don’t make any money on their own). There’s also the discounts when selling via carriers or third party retailers.

You can’t just look at the cost of raw materials and disregard everything else.

There’s also their decision to pass on unfavourable exchange rate fluctuations on to their customers. Never welcome, but it’s not quite raising pricing for the sake of raising prices either.

Besides, selling for 70% more than its cost price is a net 40% margin (70/170). Throw in the other misc costs I mentioned and 35% sounds more reasonable, even assuming your sources are accurate.

The iPhone is profitable, no doubt, but not unreasonably so.

 

[SnowCrocodile]

I am puzzled as to why people continue to argue that lower prices is somehow the magical solution to declining sales.

I am puzzled as to why anyone would argue that raising prices without providing tangible improvements is going to help declining sales.

The iPhone business is all about continuous refinement and advancement with new features aimed at improving the user experience. The iPhone business in the 2020s is not dependent on year-over-over upgrades and changes that are so shocking and momentous that a billion iPhone users run out and upgrade. Apple would not be able to handle that kind of demand. It's simply not sustainable for Apple's R&D.

And with this strategy, the slump in sales is already guaranteed.

Likewise, the reality is that people are already holding on to their smartphones longer and upgrading less frequently, because smartphone technology has more or less matured. Apple's response over the last few years has been the right one. A higher price doesn't really matter when you are intending on hold on to your iPhone for a longer period of time. Apple also makes this feasible by making their iPhones out of durable materials, supporting them with software updaters longer (5-6 years), while also making it easy to replace the battery when its capacity gets too low. There is nothing wrong with people deciding to hold on to an iPhone for 4-5 years before upgrading, yet people love to spin it as some sort of failure in innovation on Apple's part.

Apple doesn't need us to keep buying iPhones. They just need us to keep using them. And data shows that people simply aren't switching. In the meantime, Apple continues to earn from their user base in the form of accessories, services and subscriptions. Heck, they even get a cut from Apple Pay. Apple has shifted from selling iPhones to selling to people with iPhones. This isn't the early 2010s anymore.

Apple absolutely needs up to keep buying iPhones. They don't make that much on accessories, and there's a large number of people who buy 3rd party ones.

This is turn also helps to preserve the resale value of iPhones, in the event that users wish to sell them in order to fund the purchase of a new iPhone. Which in turn provides Apple with a steady supply of gently-used iPhones which they can then resell in the grey market (which again works because of the long support). Another small but easy source of revenue.

With this pricing policy, users may start selling iPhones to fund the purchase of a new Android. I received a low-end Android phone for free when I switched carriers, and used it for ***** and giggles for a week. It is surprisingly a whole lot better than what I remember from my Android days about ten years ago. And in many ways it's better than my iPhone - split screen multitasking even on a budget phone, proper USB-C charger, proper file system, long lasting battery, T9 name dialing, even the budget screen looks good enough.

I am sticking with Apple because of the ecosystem integration and long term value it provides. If either of these criteria become less attractive, I will switch.

 

[SnowCrocodile]

Apple make more than 50% margin on every iPhone they sell, more than many car manufacturers make on a car. I don’t buy into that excuse, unless Apple simply justify higher prices because they aim to maintain that enormous margin. I don’t deny Apple is very successful with their ruthless approach, but I view it from a consumer point of view and what I have to pay at the end of the day. I couldn’t care less about Apples success in all honesty.

Yes, people fail to realize that the iPhones cost more because they carry a huge profit margin, and that is because there's no internal competition, unlike in Androids.

If someone is looking for an Android phone, they can chose from Samsung, Google, LG, and a gazillion of Chinese sellers (whose quality may wary, but they are very flashy and choke-full of latest gadgets).

If you're looking for an Apple phone, you can only buy an iPhone.

A very large part of an iPhone cost is profits.

 

[I7guy]

[…]

A very large part of an iPhone cost is profits.

Ultra luxury items excepted generally speaking I have learned that people buy mass produced consumer items for their own reasons. Most people don’t care about how much is COGS or the markup, they buy based on price and value and functionality. Here’s a hint without adequate profit most businesses won’t be able to keep the lights on.

 

[webkit]

Apple make more than 50% margin on every iPhone they sell

According to reporting on Apple's most recent quarter, while gross margins for "services" was quite high at around 70% (probably thanks in part to the Google search contract payment which is basically pure profit), the gross margins for hardware products was about half that at around 35%.

 

[The-Real-Deal82]

There’s also the cost of R&D, marketing, shipping, support, the services (maps and Siri, for example, don’t make any money on their own). There’s also the discounts when selling via carriers or third party retailers.

You can’t just look at the cost of raw materials and disregard everything else.

There’s also their decision to pass on unfavourable exchange rate fluctuations on to their customers. Never welcome, but it’s not quite raising pricing for the sake of raising prices either.

Besides, selling for 70% more than its cost price is a net 40% margin (70/170). Throw in the other misc costs I mentioned and 35% sounds more reasonable, even assuming your sources are accurate.

The iPhone is profitable, no doubt, but not unreasonably so.

‘Of course overheads need to be factored in’….. That’s what I said.

I’m well aware of all that as I work in that sector myself.

 

[SnowCrocodile]

According to reporting on Apple's most recent quarter, while gross margins for "services" was quite high at around 70% (probably thanks in large part to the Google payment which is basically pure profit), the gross margins for hardware products was about half that at around 35%.

This is still huge.

‘Of course overheads need to be factored in’….. That’s what I said.

I’m well aware of all that as I work in that sector myself.

Typically overhead and all other expenses are factored in when the unit costs and profits are calculated. When they are talking about "cost" of a phone this includes all indirect expenses assigned to the product.

 

[Abazigal]

I am puzzled as to why anyone would argue that raising prices without providing tangible improvements is going to help declining sales.

Because that's precisely what appears to be happening, based on their last quarterly earnings call.

Apple Inc. (AAPL) Q3 2023 Earnings Call Transcript

Apple Inc. (NASDAQ:AAPL) Q3 2023 Earnings Conference Call August 3, 2023 5:00 PM ETCompany ParticipantsSaori Casey - VP, FinanceTim Cook - CEOLuca Maestri -...

seekingalpha.com

iPhone revenue was $39.7 billion, down 2% year-over-year but grew on a constant currency basis. We set revenue records in several markets around the world, including an all-time record in India and June quarter records in Latin America, the Middle East and Africa, Indonesia, the Philippines, Italy, the Netherlands and the U.K. Our iPhone active installed base grew to a new all-time high, thanks to a June quarter record in switchers.

I am simply pointing out that the decision to upgrade isn't based solely on pricing alone. Apple's biggest challenge right now is a lengthening upgrade cycle, and I suspect that from a profit-maximising standpoint, Apple is better off raising prices (and selling slightly fewer iPhones) than lowering prices in a bid to sell more iPhones.

What is helping Apple right now is that iPhone users aren't leaving the platform, even as they continue to attract switchers from Android. This is how they are able to grow their active install base in countries which are majority Android (like Europe and China).

And we set an all-time revenue record in Services driven by more than $1 billion paid subscriptions.

Meanwhile, because nobody is leaving the iPhone (just putting off buying new ones), Apple's install base continues to grow by way of Android switchers, which in turn is leading to continued robust growth in services revenue.

Does it suck from a consumer's POV that we have to pay more for a new iPhone? Yes. Will it also mean more revenue for Apple? Almost assuredly.

And with this strategy, the slump in sales is already guaranteed.

Which again, isn't necessarily a bad thing for Apple. People really need to get out of this mindset that Apple is a hardware company whose profitability lies solely with hardware sales. The canary in the coal mine for lengthening upgrade cycles was battery-gate in 2018 (because it meant users were holding on to their iPhones long enough for weakening battery health to actually become an issue). Since then, Apple has been methodically transitioning from selling iPhones to selling to people with iPhones.

One more thing of note - the overall smartphone market is in a slump right now, which is actually helping Apple's margins, because tech components are now a lot cheaper. It looks like Apple is holding on to iPhone component cost savings rather than passing the savings on to consumers via lower prices. Outside the U.S where iPhone pricing has moved higher due to FX, unit sales have remained solid.

So to Apple's credit, it's ironic that a slowing smartphone market means increasing profitability for Apple, even as they are selling slightly fewer units of iPhones, and it's probably a happy problem to have all around.

Apple absolutely needs up to keep buying iPhones. They don't make that much on accessories, and there's a large number of people who buy 3rd party ones.

As I am pointing out, Apple is no longer a one-trick pony solely dependant on iPhone sales to stay afloat. Heck, I would argue that Apple doesn't want too many people upgrading at any one time, simply because they can't even supply that many!

By accessories, I also mean other Apple hardware like the Apple Watch and AirPods. Even someone who received a 2nd-hand iPhone from a family member or relative can still earn Apple money by way of subscriptions, app purchases and Apple Pay.

With this pricing policy, users may start selling iPhones to fund the purchase of a new Android. I received a low-end Android phone for free when I switched carriers, and used it for ***** and giggles for a week. It is surprisingly a whole lot better than what I remember from my Android days about ten years ago. And in many ways it's better than my iPhone - split screen multitasking even on a budget phone, proper USB-C charger, proper file system, long lasting battery, T9 name dialing, even the budget screen looks good enough.

Will there be people who decide to switch to android because they find the iPhone too prohibitively expensive to continue buying? Yes. But the data I am seeing suggests a net influx of android users to the iPhone ecosystem, rather than the other way around, in spite of higher prices or the more limited feature set.

We can argue until the cows come home about why that is so but the point is - enough people seem to value what Apple offers to pay what Apple charges for the iPhone. Perhaps we should be trying to study and explain this phenomenon, not keep trying to explain it away.

 

[SnowCrocodile]

Ultra luxury items excepted generally speaking I have learned that people buy mass produced consumer items for their own reasons. Most people don’t care about how much is COGS or the markup, they buy based on price and value and functionality. Here’s a hint without adequate profit most businesses won’t be able to keep the lights on.

Thank you for the hint, Captain Obvious.

The point is, iPhone profit margins are very high, so there's plenty of room for price roll back if the sales slow down to the point they can no longer be offset by higher prices.

Apple has been playing this game before - keep raising prices as far as the market will bear, then slightly roll them back (introduce cheaper models, etc.)

Their biggest problem in the long term is the combination of growing Android integration with Windows, and the influx of premium Chinese models (which are still cheap compared to Apple and Samsung) into the lucrative European market. They can't grow profits on the US market alone.

 

[I7guy]

Thank you for the hint, Captain Obvious.

You’re welcome Sir Spout-A-Lot.

The point is, iPhone profit margins are very high,

No they aren’t that high. I think they are quite reasonable.

so there's plenty of room for price roll back if the sales slow down to the point they can no longer be offset by higher prices.

I like how Macrumors posters are quick to budget and spend other people’s money.

Apple has been playing this game before - keep raising prices as far as the market will bear, then slightly roll them back (introduce cheaper models, etc.)

Manufacturing products with less features that don’t cost as much is not rolling back prices.

Their biggest problem in the long term is the combination of growing Android integration with Windows, and the influx of premium Chinese models (which are still cheap compared to Apple and Samsung) into the lucrative European market. They can't grow profits on the US market alone.

I don’t know how important windows android integration is to people. Imo, it won’t move the needle of iPhone buyers.

 

[The-Real-Deal82]

No they aren’t that high. I think they are quite reasonable.

You think manufacturing a phone for £372 and retailing it at £1199 isn’t a high margin? I’d love to see how high these retail costs go before fans of the brand admit we pay significantly higher than needed.

 

[webkit]

This is still huge.

Perhaps but not nearly as "huge" as some of the other numbers that have been thrown around here.

There are many consumer products that have higher margins than 35%.

 

[SnowCrocodile]

You’re welcome Sir Spout-A-Lot.

Touche 🧐

No they aren’t that high. I think they are quite reasonable.

They are the highest in the industry, and that industry has some of the highest profit margins overall.

In 2021, Apple's iPhones accounted for just under 17% of global market (the number of phones sold), yet 45% of global revenue (the volume in dollars) and a whopping 75% of profits.

When you only sell 17% of units yet capture 75% of profits, your margins are huge by any measure.

Global smartphone profits – Apple continues to dominate - 9to5Mac

While Apple doesn't ship more phones than anyone else, it continues to take home most of the global smartphone profits ...

9to5mac.com

Gartner Says Global Smartphone Sales Grew 6% in 2021

Gartner says global #smartphone sales grew 6% in 2021. Read more here. #IT

www.gartner.com

I like how Macrumors posters are quick to budget and spend other people’s money.

I like how Macrumors posters tend to not see the difference between spending other people's money and trying to predict market patterns. You're welcome to pay $10k per phone, but you are just one person.

Manufacturing products with less features that don’t cost as much is not rolling back prices.

I'm afraid you're completely losing the picture.

I don’t know how important windows android integration is to people. Imo, it won’t move the needle of iPhone buyers.

We'll see. The ability to integrate the phone and laptop is one of the biggest draws of Apple ecosystem. Yet, Windows is still the biggest presence in the work environment and for games, by far. More people have a Windows laptop or desktop than a Mac. Recently, both MS and Samsung made some major strides in bringing a similar level of integration to Windows and Android. If the iPhone prices keep climbing on one hand, and the integration between Windows and Android keeps improving, the other side may start looking more and more appealing. Which is good - having an alternative is always good.

The iPhone rules in the US and Canada, but it's not really as prevalent in most of Europe, with few exceptions, and most of the rest of the world. If they keep jacking up the prices while falling behind in perceived value, they may see their sales eroding. While there's a number of users who are diehard fans, or perceive an iPhone as having more snob appeal, most people just want a good user experience at a decent price.

 

[Sebalto]

My last iPhone was the 2020se so looking forward to the 15 Pro Max.

 

[webkit]

You think manufacturing a phone for £372 and retailing it at £1199 isn’t a high margin? I’d love to see how high these retail costs go before fans of the brand admit we pay significantly higher than needed.

If you want people to take your argument seriously, at least try to use more realistic figures. Material costs are only part of the cost of making and selling iPhones. Secondly, Apple isn’t selling the 14 Pro Max for £1,199. They're selling it for around £999 (retail) and the government is taking the rest. You can't use the VAT amount as part of Apple's margin.

 

[I7guy]

You think manufacturing a phone for £372 and retailing it at £1199 isn’t a high margin? I’d love to see how high these retail costs go before fans of the brand admit we pay significantly higher than needed.

Is the 372 all inclusive? I doubt it, nobody really knows the exact number. However when apple sells hundreds of millions of phones yeah they make a pile of money.

 

[Sebalto]

If you want people to take your argument seriously, at least try to use more realistic figures. Material costs are only part of the cost of making and selling iPhones. Secondly, Apple isn’t selling the 14 Pro Max for £1,199. They're selling it for around £999 (retail) and the government is taking the rest. You can't use the VAT amount as part of Apple's margin.

Correct. Like saying the cost of an album is the CD manufacturing costs (10p)

 

[The-Real-Deal82]

Is the 372 all inclusive? I doubt it, nobody really knows the exact number. However when apple sells hundreds of millions of phones yeah they make a pile of money.

I don’t know, that’s the figure quoted as the cost to make a single iPhone 14 Pro Max. Of course there is marketing, wages and all sorts of overheads paid out of the profits. It’s still higher than any consumer product I am aware of.

Yeah, when Apple sells the amount of iPhones they do, they make serious amounts of profit.

 

[Sebalto]

I don’t know, that’s the figure quoted as the cost to make a single iPhone 14 Pro Max. Of course there is marketing, wages and all sorts of overheads paid out of the profits. It’s still higher than any consumer product I am aware of.

Yeah, when Apple sells the amount of iPhones they do, they make serious amounts of profit.

The markup is similar to the S23U. Nobody goes after Samsung for this, notably.

 

[The-Real-Deal82]

The markup is similar to the S23U. Nobody goes after Samsung for this, notably.

They don’t because the price drops soon after launch, sometimes by £300-£400 and carriers give much better deals. You don’t get deals on iPhones, no subsidised tariff, no price drops within 12 months. An iPhone 14 Pro is the same price now as it was 11 months ago when it was launched, yet Android flagships enjoy much better deals.

 

[Sebalto]

They don’t because the price drops soon after launch, sometimes by £300-£400 and carriers give much better deals. You don’t get deals on iPhones, no subsidised tariff, no price drops within 12 months. An iPhone 14 Pro is the same price now as it was 11 months ago when it was launched, yet Android flagships enjoy much better deals.

I've been sporadically tracking the S23U price since launch and it hasn't deviated from £1249 for entry model. At no point have I seen an £849 S23U.
In the UK, EE are charging full price for both IP14PM and S23U.
Not sure what you're talking about.

 

[_Spinn_]

This is sadly not surprising.