Market analysts with IHS Markit recently published a cost analysis of Apple’s (NASDAQ:AAPL) new iPhone X. The iPhone X with 64 GB of storage is priced at $999, but IHS Markit claims that the device costs just $370 to manufacture.
Previous IHS Markit reports estimated the cost of the iPhone 8 and iPhone 8 Plus — two lower-cost iPhones announced alongside the premium iPhone X — at $247.51 and $277.66, respectively. These reports seem to confirm what’s intuitively obvious: The iPhone X is more expensive to build, so Apple charges more for it.
If the iPhone X really costs $370 to build, then you might be tempted to think that Apple generates at least $629 in gross profit per iPhone X sold, for a gross profit margin of approximately 63%. Running the math for iPhone 8 and iPhone 8 Plus we get gross profit margins of 64.6% and 65.2%, respectively.
However, we know for a fact that there’s no way that Apple’s pocketing gross profit margins of between 63% and 65% on its new iPhones. Most of the quarter-over-quarter sales increase that Apple is expected to enjoy in going from its most recently reported quarter to the current quarter will come from the ramp-up in shipments of iPhone 8, iPhone 8 Plus, and the reportedly tough-to-build iPhone X. If Apple’s new iPhones really generated gross profit margins of over 60%, then Apple wouldn’t be guiding to gross profit margins of between 38% and 38.5% for the current quarter; it’d be much higher.