Apple’s Bill of Materials increases for iPhone 5

The Wall Street Journal posted an article earlier this week before the iPhone 5 came out entitled “Apple iPhone 5’s higher production costs no threat to its profits”. In the article, it discusses and analyzes Apple’s bill of materials, or BOM, before the iPhone was actually released. In the production of this iPhone, apple totaled up a bill of $199 for the 16GB device. This is up 6% from the previous model and is also in line with the price for the phone when purchasing a 2 year contract with the phone company. The only issue with this pricing is it goes off the market price of the item, not the amount apple might be paying for it. However, this does not change the fact that apple has increased to price of the pieces and electronics that it puts into its phones.

A reason why the BOM for the iPhone is such an analyzed piece of information is because the iPhone itself amounts for 40% of Apple’s gross margin and has remained far ahead of any other manufacturer. Then, it was taken in to account how when new iPhones are released, the old models are sold at a greatly reduced price brand new and are often more attractive to consumers when there are not a lot of changes done to the new iPhone.

Although the physical iPhone itself is what brings in the curious consumers, it is also important that Apple still appeals to the carrier companies that offer their phone. It is important for those companies to have the newest technology and the best technology to be able to offer to their prospective and current customers. They make their profits on the monthly services but without phones such as the iPhone or other close competitors, they would not be able to lock in those contracts.


This article intrigued me not only  because it is a day after the launch of the iPhone 5, but I feel like it is something that a lot of people can relate to and are interested in reading since it is a product we have all own, have played with, seen, or at the least heard of… for my generation at least. It is also shocked me to see that the iPhone 5 increased its BOM. It makes me wonder if apple will continue to raise the Bill of Materials with everyone phone model, or if they will have a project manager step in through out the year this year who really focuses on the cost of the materials. It is evident that apple has focused on the production and timeliness, even though some of us were expecting the iPhone 5 and all of its perks last November, but it seems as though they have lost sight of cost… or, have they? Is it maybe that Apple is such a profitable, successful, dominant company in today’s bad economy that instead of focusing on such a minuscule, insignificant cost to them they would rather focus on delivering a product that continue to keep them above the rest by miles? Or was this their plan since last year when they realized that realeasing the iPhone 4s, which was not much different from the 4, was not as profitable as they were expecting it to be? Instead of purchasing the new phone, people p urchased the iPhone 4 for much cheaper because there really was not a huge benefit to paying full price for the 4S. Apple may have figured that instead of focusing on cost, they would focus on production of a product that will guilt consumers into buying over the 4S so that they see the profits in the 5?


I am interested to see what people think Apple’s intentions are in this situation. Was this a strategic plan or do you think the increase in the BOM is going to hurt Apple in the end?

7 thoughts on “Apple’s Bill of Materials increases for iPhone 5

  1. The BOM increase probably won’t hurt Apple in the long-run. The fact remains that their products are constantly in demand and tend to rise high in sales ranks. People tend to demand Apple’s products, especially when it comes to the latest tech in smart phones. A recent analysis in July showed that iPhone and Android were almost neck and neck in the smart phone market, the introduction of the iPhone 5, especially after all the buzz, delays and curiosity surrounding its release, people were bound to jump at the opportunity to upgrade to it upon its release (i.e early adopters). Apple will be fine, they can afford the extra cost especially when it is compensated in sales.

  2. Apple realized consumers tend to buy the previous model of the newer model because of the cheaper price and that they are about the same. They would try to convince them that the newer model is much more worth it in value because of the production cost. Thus it is a better phone. I think Apple raised the price on purpose, knowing that there are loyal customers that would buy it no matter what. I do not think Apple will have much of a lost from selling at a high price. Their production cost is probably way lower than it is because it is made overseas. Even with a few sales, the expenses are already covered with the overpricing of their products.

  3. I definitely think that Apple raised the price knowing that the newer model will still be bought by the loyal customer base. It is without a doubt true that Apple will not see a loss in profits because of this raise. Apple is solid in the long run, and people have even spoken about it becoming the first trillion dollar valued company. I think that Apple is still way ahead of and Android, and that BOM increases wont change the competition between them significantly.

  4. Apple has generated a lot of loyal customers throughout their years, and with the iphone making the trend in many talks nowadays it is in no doubt they know they have a lot of apple followers. I doubt the increasing BOM will hurt Apple on a long run, because regardless of what version iPad, Macbook, or iPhones they release, they know people will always buy the newer versions just so they can follow the trend of technology in today’s world. Those who choose can’t afford the new apple product or does not see a large different between the newer product and previous tend to purchase it previous product at a discount, so I doubt Apple will be getting hurt by their increase in the BOM because people will always be buying their product.

  5. This will not hurt Apple in the long run. Apple has a loyal customer base that is constantly begging for the newest fastest model of technology. They set the bar each year for phone quality. Plus, the money Apple saves from outsourcing their manufacturing will definitely make up for their increased BOM.

    1. I believe that the increase in the bill of materials was intended to not only provide a better product but to intrigue loyal customers into purchasing the latest smartphone with all the perks and added benefits as a result of the larger bill of materials. There also seems to be a trend in which a model is released and then subsequently an “s” model is released later on. As noted by the 3s and 4s phones, they were a product that were similar to the 3 and 4 version phone, respectively. My prediction is that the loyal customers are most willing to purchase the iPhone 5, but the rest of their market will wait to purchase the possibly new version of the iPhone 5, thus creating more profit from the late adopters of the product.

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