When Apple (AAPL) released the iPhone 5S and iPhone 5C this fall, investors were wringing their hands — this wasn’t the cheap iPhone analysts were looking for to drive up sales volume. So what do you suppose would happen if the iPhone 6 expected in 2014 is actually more expensive than current models?
According to All Things D, Susquehanna analyst Chris Caso is suggesting Apple could do just that, jacking the price of next year’s flagship iPhone by as much as $100. Why would Apple consider breaking with tradition and boosting iPhone prices?
Going cheap has never been Apple’s way of doing things. While the strategy cost its ownership of the PC market to computers running Microsoft (MSFT) Windows, Apple’s PC division still does quite nicely. Despite refusing to drop iPad prices and seeing a resulting slide in tablet market share, Apple continues to be the largest tablet manufacturer and commands high profit margins on those devices — the iPad Air has a 45% margin and is selling well, despite competitors like the Kindle Fire HDX 8.9 sold by Amazon (AMZN) for $100 less at break-even pricing.
While tablets are profitable, the iPhone has been Apple’s golden goose when it comes to margins.
The Susquehanna analyst says a faster processor and bigger display would be the driving factors that could boost the iPhone 6 price tag another $50-$100.
Based on build costs (excluding manufacturing, shipping, packaging and marketing) when the company released the iPhone 5 last year, moving to a bigger display and camera dropped profit margins to 68% from the 71% of the iPhone 4S. However, the current iPhone 5S — which retains the same display but includes improved camera hardware and the new Touch ID sensor — saw margins creep back up to 69%.
When the iPhone 6 is released, I don’t put much faith in the theory that a faster CPU is going to raise iPhone 6 manufacturing costs in a meaningful way. Every generation of iPhone has received an upgrade, and if any version should have seen a significant boost in cost, it’s the iPhone 5S which moves to 64-bit and gains the M7 motion co-processor. Instead, Apple’s bill of materials declined for this version.
However, a bigger, higher-resolution display could certainly make the iPhone 6 more expensive to build, especially if Apple decides to curve it, as has been suggested.
According to IHS iSuppli, the current 4-inch Retina touchscreen display is the most expensive iPhone component, costing Apple $41. In comparison, the 5-inch AMOLED HD touchscreen display used by the Galaxy S4 costs Samsung (SSNLF) $75, so even if Apple went with a straight-up upgrade to 5-inches, the iPhone 6 could cost $34 more.
All other things being equal, the iPhone 6 price would then need to increase by $100 — in other words, have a starting price of around $749 (or $249 to $299 on contract) — just to maintain current margins.
So, will you be seeing a $749 iPhone next year instead of the $649 we’ve grown accustomed to?