The next iPhone is coming, and it won’t be cheap.
To most Apple fanatics, that’s not much of a surprise. Apple has always positioned its smartphones as premium products, and the iPhone brand has always boasted impressive technical specifications.
But the new iPhone 8 may launch with a pricetag of over $1000, according to analyst Ming-Chi Kuo. Developer John Gruber agreed, estimating that the entry-level version of the iPhone could start at $1,200.
Obviously, that’s a considerable price increase over past iPhone models.
The 128GB version of the iPhone 7 launched at a hefty $749. What could possibly justify the increase?
Gruber and Kuo say that the new iPhone’s high-end components bear the blame. Some of the phone’s technical specifics were reportedly leaked to the Economic Daily News, including the presence of a new OLED panel and a fingerprint reader.
Goldman Sachs estimates that the OLED display will add $35 to the phone’s manufacturing cost. New 3D sensing technology (likely located in the phone’s camera) will add $20, and integrated TouchID will also raise the price.
As Gruber wrote on his blog:
“Apple does not report margins per-device or per-product-line, but considering that the iPhone accounts for around 70 percent of all Apple revenue, the margins for new iPhones almost certainly are somewhere between 35–40 percent.”
“[…]It sounds to me like the OLED iPhone is a phone which Apple can’t make 40 million of per quarter, at least not today. And if that’s true, that means it should be more expensive. Not should in any moral sense, but simply because that’s how the principle of supply and demand works. When supply is constrained and demand is high, prices go higher. The higher prices alleviate demand.”
Apple fans might not shoulder that entire $1000+ pricetag.
While most analysts seem to agree that the new iPhone will be much more expensive than any other phone on the market, phone service suppliers like Sprint and AT&T will structure plans to help consumers pay for the device. Ultimately, consumers might pay $40 per month for their phones—a big number in a monthly budget, perhaps, but not prohibitively expensive.
Buyers who choose the “unlocked” version of the iPhone (meaning that the phone isn’t assigned to a specific carrier) will have to pay the full amount. Gruber says there’s little chance of relief, as Apple’s profit margins must reach 35 percent, and the new device will need to be manufactured at scale.
“And for Apple that scale is massive: anything less than 60–70 million in the quarter in which it goes on sale is a failure—possibly a catastrophic failure,” Gruber writes.
The company isn’t backing off their expensive design, either. Investment analysts at Goldman Sachs say that the design is “locked in,” and given the scale of production, the manufacturer cannot easily change course. Apple seems to be betting big on the iPhone 8, but investors aren’t shying away, as the early reports helped to boost stock prices for the technology giant.
The bad news: We’ll have to wait quite a while to see whether the new iPhone 8 performs as expected, as Apple will likely release the iPhone 7S and 7S Plus models prior to the next-generation iPhone 8.
