There are several factors that contribute to the cost of an iPhone. These include complexity of the electronics, Offshore jobs, and the cost of the display. However, all of these factors are difficult to control or replicate. So, how can Apple reduce their manufacturing costs? How much should we expect to pay for an iPhone? This article outlines some possible options. Until Apple unveils a production line in the US, we will need to make do with our current manufacturing systems.
Apple’s manufacturing costs
Although Apple labels its products “designed in California,” the Cupertino-based company relies on the labor of hundreds of thousands of Taiwanese and Chinese workers. In the Liang Juan factory, most of the workers were young adults in their late teens and early twenties. These workers are likely responsible for the higher manufacturing costs of Apple’s iPhones, which are likely to cost more than similar devices based on their design and quality testing.
While the $429 difference between the cost of building an iPhone and the price it sells it for is profit, the difference between the two figures does not include the costs of wages and other expenses for Apple’s staff and other expenses. Further, these costs don’t include the cost of research and development on software and other hardware components. Even if you look at the Apple iPhone’s manufacturing costs, you’ll notice that the manufacturer doesn’t include the cost of developing iOS and the bundled applications that make it work.
The cost of iPhone assembly is not based on cost per part but on skill, scale, expertise, and infrastructure. All of these factors cost money, time, and long-term investments. Moving the entire manufacturing process to the United States would increase the cost of the iPhone by about thirty to forty percent. In addition to the increased costs, Apple would have to increase prices to make up for the difference in profits. In this way, Apple would have to invest several hundred million dollars more in production of the iPhone than it does today.
NBC News released a breakdown of the production costs for Apple’s iPhone 11 Pro. The news organization looked at the manufacturing costs of each component of the phone, including the components, and then added up the total. It turns out that Apple’s iPhone 11 Pro costs almost $1000, regardless of storage. That’s an incredible profit margin for a technology company with so much sales volume. So, what is Apple’s secret to producing high-quality devices at the lowest cost possible?
Offshore jobs
The cost of making an iPhone overseas is often cited as a barrier to better jobs in the US. The process involves 8,000 workers in dormitories, each of whom was roused in the morning with a piping hot breakfast and guided to a workstation. Each employee began a 12-hour shift fitting glass screens into frames. Within 96 hours, the factory had produced more than 10,000 iPhones. Today, outsourcing has become commonplace across hundreds of industries.
Even if the cost of iPhone manufacturing overseas is a major barrier to reshoring in the United States, the benefits are clear. Reshoring all iPhone manufacturing would likely cost upwards of $4 billion. It would also impact the American consumer. However, Apple must demonstrate that it is prioritizing American citizens, which is why it has taken several steps to reshore some production. While a full reshoring of iPhone production will probably not happen overnight, the company is committed to doing so.
To date, the Chinese factory where most iPhones are assembled employs 230,000 workers. While the Chinese population is higher than the United States’ average, it is only fifty cities that have a labor force large enough to produce iPhones in a timely fashion. Apple commissioned a Chinese factory to revamp its assembly line, forcing an overhaul of the assembly line. New screens arrived late at night, forcing a reshoring of the assembly line.
The cost of making an iPhone is higher than the average price of other comparable smartphones. The iPhone’s manufacturing costs likely range from $12.50 per unit to $30 per unit, making it at least twice as expensive as the average. However, labor costs represent only a small part of the overall cost structure – only two to five percent of sales price. For the rest, the cost of living is very low. It also means that the workers’ wages are lower.
Complexity of electronics
The electronics that make up an iPhone are complicated. They include the speakers, circuitry, and the vibration unit. Many of these components are made in China. Even Apple doesn’t fully disclose all of the components in the iPhone, and so many of its details remain hidden. But it’s important to understand the key drivers of complexity when making an iPhone. Listed below are some of the materials and components that make up an iPhone.
Price of display
Replacing a display on an iPhone can be an expensive affair, especially if you have an old model. The replacement of an iPhone screen can cost as much as INR 12,000, depending on the model and the type of display. While newer phones have larger screens, the cost of replacing a display on an iPhone X can be up to five times as much as a replacement for an older iPhone model. To cut down on costs, be extra careful with your device.
LCD displays were the standard on most phones until a couple years ago, and Apple stayed with them despite Samsung experimenting with early OLED displays. LCDs are still used in the iPhone X and XR models, and replacements cost about $75 from iFixit for the X, $85, and XS models. The XS Max costs $165. Fortunately, Apple is not putting the display on the iPhone 13 yet, but the iPhone 13 is a different story.
Barriers to entry into the market
One of the main challenges for other smartphone companies is competing with Apple. Apple develops products that are distinctive and build significant brand loyalty. Its customer base is already large, making it difficult to compete in this market. It also requires high upfront costs to establish a company and establish a brand name. For this reason, Apple’s products are highly desirable and expensive to compete against. A new entrant would have to overcome a number of barriers to entry before it could compete with Apple.
While consumers are willing to pay high prices for an iPhone, many barriers to entry prevent new firms from entering the market. These barriers include high costs for research and development and brand loyalty. New firms have to spend a large amount of money to compete with the years of advertising and user experience that a successful company has invested. However, these barriers are gradually decreasing because of improved technology and widespread knowledge. These factors are important to understanding the barriers to entry for consumer electronics.
The barriers to entry into the market of an iPhone are not only price-based, but also technological. While Apple had considerable experience manufacturing mass-market consumer electronics devices, many of its components were common to other cell phone manufacturers. A new entrant would not have the luxury of this, and the cost of developing similar technology would be prohibitively high. However, the iPhone was still significantly different from competitor products, so Apple would need to focus on the differentiation of its product over time to avoid losing its popularity.
The iPhone has an impressive combination of features and functionality. While this combination of features and price are attractive, it remains a niche product. Its high price of $499 for a four-gigabyte model and exclusive carrier agreement with Cingular limit its market. The price may not be as high as consumers would like and some substitutes are better performing. However, it is unlikely that a consumer will be willing to pay the high price for the Apple iPhone.