Smartphone prices are higher than ever, are we being ripped off?

The prices of smartphones in the last three years have skyrocketed. The flagships of 2017 reached a whopping $1,000, and that’s a lot of money. It may be worth it for some people, but the inevitable question arises: How much does it really cost to make a smartphone? Are we being ripped off?

How much do the components cost?

The price of a smartphone is a simple figure, made up of very complex parts. Here we’re going to focus on what each individual component costs and try to get an idea for the end result. Of course, we will have to exclude the developer investment costs, but let’s take a look into the rest of the expenses.

It’s important to note that these figures only make up half of the cost, otherwise you may feel extremely cheated when you take a look at these numbers!

IHS Markit published the material costs for Apple’s latest device, the iPhone X, revealing that it has a higher material cost at $370 than the Samsung Galaxy S8, which according to a news report from IHS, costs $307 to make. The iPhone X costs consumers a hefty $999, with the manufacturing cost being around 37% of the total price, and the Galaxy S8 costs about $720, around 42% of the total.

The graph below demonstrates these price differences:

chart IHS
Figures released by IHS Markit / © AndroidPIT

In the graph we see how the most expensive components are the display, body, cameras and processor, which in both devices account for more than half of the cost of components. After this, we also have to add the manufacturing costs, which basically refers to the process of assembling it together. This varies from one device to the other and can range from $3 to $20. For the S8, the manufacturing expense is $5.90.

What profit margins do manufacturers make?

As you can see, making a smartphone costs considerably less than the final price of the device. But that difference isn’t all the manufacturer wins. The price of the device must also be deducted from the distribution costs, research costs, development costs and most importantly, marketing and advertising.

At the end of 2017, WIPO (World Intellectual Property Organization) published a report that included the profits manufacturers gain when selling a smartphone. WIPO gave us three examples: the Samsung Galaxy S7, the iPhone 7 and Huawei P9.

The WIPO profit margin for these three devices according to the global average price was 34% for the S7, and 42% for iPhone 7 and P9. So it seems that for the top range of the three largest manufacturers in the world, the profit margin is quite high. But not everyone makes money with their smartphones. LG, Motorola and Sony are three good examples of how making a profit by selling smartphones is difficult if you aren’t a top player in the market. As usual, the top seller earns the most.

What’s most shocking is that the number of sales aren’t affected even though the prices of high-end devices continue to go up. I have my own social theory for this: they have become yet another symbol of status and recognition, the same as with clothes or cars. 

Do you feel ripped off? Have smartphone prices reached the maximum with the latest flagships?

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