The iPhone 13: Apple's rising costs revealed | Hacker News Reader

The iPhone 13: Apple's rising costs revealed

asia.nikkei.com

40 pointsmarc__114 comments

The components in the early iPhones were all commodity off the shelf parts. That’s one reason analysts thought Apple could never maintain its technical lead as other companies could easily replicate the tech. They didn’t factor in the sophistication of the software, but that couldn’t necessarily hold indefinitely.

Since then Apple has invested massively in premium components, in many cases helping develop breakthrough new tech. Their CPUs are the best known example, but take retina displays. Apple helped develop the tech with sharp, and invested heavily in it to guarantee exclusivity. They actually owned the manufacturing equipment operated in Sharp factories. They sunk huge resources on long term contracts for flash memory. They bought small tech companies with unique optimisations, like an Israeli company with ultra efficient flash memory control circuits. Thev’re had a very long standing close partnership with Sony on the camera modules. Early iPhone cameras were only mid range catalogue parts, but for a long time they have been unique custom designs to Apples precise specs. Face ID is enabled by unique miniaturised 3D scanning tech. They’ve gone from generic gorilla glass to ever better refinements of the tech that wouldn’t exist without their patronage.

All of this has not come cheap. The point is to create a massively deep and wide technical and capital moat between iPhones and anything else on the market. It’s a very deliberate long term strategy that’s been running for well over a decade.

Higher component prices are a strategy, not a burden. Pitching this as ‘rising costs’ that are putting them ‘under pressure’ is industry analysts yet again looking at what Apple is doing and boldly leaping to entirely the wrong conclusions.

> The point is to create a massively deep and wide technical and capital moat between iPhones and anything else on the market. It’s a very deliberate long term strategy that’s been running for well over a decade.

It's worth noting that this is also the reason that non-Apple ARM-based CPUs won't be taking over from x86 for a long time if ever; the difference between Apple/Intel/AMD in terms of performance is still multiple years ahead of Qualcomm/Samsung/anyone else's best efforts, even though these companies have had ample time to catch up.

Now, maybe Apple can put some time in getting their newest UI framework to work properly.

Demonstrated perfectly by the state of smartwatch processors.

It’s also a bit misleading to frame the company on the decreasing margin of one product: because this hides the fact that the margins across the total company have actually increased.

The smartphone market is saturated: if Apple don’t spend to differentiate (from others and their prior models) then there is no reason to upgrade and that is a lost sale. If sales and upgrades are the result of spending more on the device: that’s not a bad strategy - not every product should stagnate and race to the bottom.

And as mentioned earlier, margins across the whole business are up: so there is clearly a positive balance in making the phones more compelling in order to secure those halo purchases.

> That’s one reason analysts thought Apple could never maintain its technical lead as other companies could easily replicate the tech. They didn’t factor in the sophistication of the software, but that couldn’t necessarily hold indefinitely.

Something that was also overlooked: talent.

Apple was able to attract some of the best talent in the world. I don't think other companies were as successful (BlackBerry/Samsung to Apple was seen as a step up, the opposite was almost unheard of).

The actual interesting interactive site that has the teardown and breakups - https://vdata.nikkei.com/en/newsgraphics/iphone-teardown/

(The headline could have been better - it sounds like PR fluff trying hard to somehow justify why a trillion dollar company needs to charge $1000+ for one of their devices. Wouldn't a teardown of any other flagship model of other companies reveal the same - that the components used are now costlier than 10+ years back?)

This is a really cool webpage. Are there more webpages for other Apple products or even other companies products?

According to Apple the cost of products (meaning: hardware) went from 70% to 66% in a year.

Source: https://www.apple.com/newsroom/pdfs/FY21_Q4_Consolidated_Fin...

  2021 Q4: 42790/65083   = 66%
  2020 Q4: 35197/50149   = 70%
  
  2021 FY: 192266/296392 = 65%
  2020 FY: 151286/220747 = 69%

That's for their entire business though, not just the iPhone.

Only the hardware business, of which iPhone still is the biggest chunk I think.

The comparison at the bottom of cost/price ratio of different manufacturers at the bottom of https://vdata.nikkei.com/en/newsgraphics/iphone-teardown/ was interesting. You can see how the relatively new entrant Huwawei is willing to eat their profit margin for market share vs the legacies (Apple, Sony, Samsung): ~37-39% vs 51% Cost-to-retail-price ratio.

https://archive.md/xLEE3

Interesting note:

> Since the iPhone 12, it has been impossible to swap major components from one iPhone to another, since each part now has its own serial number and the phone can tell if it has been changed.

Display, SoC, Camera Module. Surprisingly Nikkei has the better BOM cost analysis compared to others.

Of course there are still other per unit cost like Patent and Services not covered in the Cost-to-retail-price ratio. Roughly at about $30 / unit.

The lower margin over time isn't much of a problem with volume. Not to mention the the BOM estimate cost accuracy shift as Apple uses more and more bespoke component.

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