Bloomberg’s Mark Gurman and Ian King report that Apple is estimated to make an additional profit of around $134 per unit for the 512GB models of the iPhone XS and iPhone XS Max over the 64GB model.
Apple charges $350 more for the 512GB model, but the report says estimates indicate the Cupertino firm pays only approximately $132 in additional memory costs.
The high-end XS and XS Max models unveiled earlier in September come with a 512-gigabyte storage option, twice as much as the previous maximum and enough to hold a couple hundred thousand photos or dozens of high-definition movies. That’s up from a maximum 256GB on last year’s flagship iPhone X, and 64 times as much as what the original iPhone had a decade ago. Apple Inc. charges customers a lot more for this storage than it pays suppliers, and it hasn’t reduced the markups for higher-capacity options or provided a way for customers to add storage later, even though component prices are falling sharply.
In 2017, Apple offered two iPhone storage tiers, 64GB and 256GB, with a price jump of $150, for an estimated profit of $107 for the higher capacity models of the iPhone 8/8 Plus and the iPhone X.
Although NAND flash memory costs have fallen in the past year, Apple is not passing any savings onto customers, instead they are reaping increased profits, which will be looked upon favorably by investors.
Apple is tackling a global smartphone industry slowdown by raising iPhone prices, offering new digital services, and wringing more profit from parts that are becoming more commoditized. Selling more storage with iPhones is a powerful example of the latter strategy. “Storage is one of their levers to create more revenue and is absolutely the most profitable iPhone feature,” says Wayne Lam, an analyst at researcher IHS Markit Ltd. Adding more isn’t much work for Apple, because it just means swapping a chip, he adds, “whereas when you increase the screen size, you have to completely re-engineer the phone.”
Here’s Lam’s rule of thumb: Storage costs Apple about 25¢ per gigabyte, while the company charges customers roughly 78¢. By doubling the maximum available amount, it’s digging deeper into this earnings gold mine. Apple charges an extra $350 to jump from the 64GB minimum to the new 512GB option. Data compiled by Bloomberg show that, excluding assembly and related software work, the largest storage option could make the company about $134 more per phone than the smallest storage option, up from $107 in last year’s models.
Apple generally doesn’t announce the mix of iPhone sales, so it isn’t known for sure which capacity models buyers opt for. However, as the iPhone XS and iPhone XS Max are both capable of recording high resolution photos and 4K HDR 60fps video, it is reasonable to believe high-capacity models are proving popular.