iPhone 8 and 8 Plus cost more to build but still generate healthy margins for Apple

Apple iPhone 8 (Apple)
The iPhone 8 Plus costs more to make than any previous version of Apple's flagship.

The new iPhone 8 and 8 Plus cost significantly more to make than their predecessors, according to a preliminary estimate from IHS Market. But Apple is still generating healthy margins, though, as it almost always does.

The iPhone 8 Plus with 64 GB of memory carries a bill of materials (BOM) cost of roughly $288.08, IHS said, higher than any previous version of Apple’s iconic phone. The device also costs about $7.36 for basic manufacturing, bringing its overall cost to $295.44, nearly $20 more than the iPhone 7 Plus when it was released.

And the iPhone 8 carries a BOM of $247.51, which is $9.57 higher than the iPhone 7 when it was released.

But the unsubsidized price of the 64 GB iPhone 8 starts at $699, which is a $50 markup over the starting price of the iPhone 7 at launch. The price tag of the iPhone 8 Plus starts at $799, marking a $30 increase than that of the iPhone 7 Plus at launch.

“The higher total BOM cost for the iPhone 8 Plus can’t be tied to a single area or feature,” said Andrew Rassweiler, senior director of cost benchmarking services for IHS, in a press release. “The higher cost is the result of slower annual component cost erosion tied in with additional features. From a teardown perspective, the biggest cost adders would be the increased NAND flash memory content and new wireless charging components.”

The new iPhones have hit shelves as the overall smartphone market begins to heat up in a big way in advance of what appears to be a particularly eventful holiday shopping season. Samsung recently introduced the Galaxy Note 8, Essential Products’ first phone just became available, and Google is expected to launch a second-generation Pixel next week.

Meanwhile, Apple is still scrambling to launch the highly anticipated iPhone X, which is positioned to compete with Samsung’s latest model at the very high end of the market.

And while carrier promotions for the iPhone 8 and 8 Plus have been relatively muted out of the gate, analysts say operators may become much more aggressive in the coming weeks as they look to leverage new phones to gain market share.

“The new iPhone 8 and 8 Plus, and later the iPhone X, are important devices for Apple and anticipation is running high,” said Gerritt Schneemann, IHS’s senior analyst for mobile handsets. “Apple’s shipments for the last quarter were flat year-on-year and Samsung’s Galaxy S8 devices have been successful in the high-end pricing segment, creating a competitive environment. The iPhone X stands to further confirm Apple’s grip on the premium pricing tier when it becomes available in November.”