Apple is expected to launch three new handsets in 2018; an update to the iPhone SE, a phablet-sized iPhone X Plus, and a refresh of the iPhone X. Digitimes is reporting that the 2018 version of the flagship iPhone X will have a significantly cheaper bill of materials.
The bill of materials cost to Apple could be reduced by as much as ten percent. Although there are other costs to consider (such as the cost of assembly and shipping to retail stores) the reduced cost of the parts feeds into a very important decision for Tim Cook. He can either drop the price of the ‘regular’ iPhone by around $100 on the final retail price, or he can keep the price at the same level and pocket the extra revenue.
I suspect the instincts of Apple’s CEO will be, as it has done so many times in the past, to keep the unit price as high as possible and extract the maximum revenue. That maintains the status of ‘brand Apple’ it maximizes the short-term return to investors and it is ‘the way things have always been done’. No matter the constant clamour for cheaper tech out of Cupertino, Apple has been reluctant to move its hardware out of the tight price bands it applies.
With the iPhone X SE expected at some point this year to fill the $799 entry point, and the iPhone X Plus expected to come in at $1199, that leaves the $999 price point the natural spot for the ‘middle device; in the tier. Cut the bill of materials, increase the revenue per handset, maintain the income, stand by for record earnings, and everyone will be happy.
Tim Cook’s decision will be to trade unit sales for margin. Less iPhones will be sold, but with each handset earning a larger margin, revenue can continue to climb. In the short-term, there’s no issue with that. But this short-term approach can lead to a handset manufacturer falling off a cliff-face. (www.forbes.com)
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