IHS: base 64GB iPhone 8 includes material costs of $247.51, up from $237.94 for 32GB base model iPhone 7, equaling about 35% of sale price, same as last year
Apple margins stay high as company raises price of new models — Bigger changes to Apple's business formula seen with iPhone X
Context & Ripple Effects
IHS's iPhone 8 teardown extends an annual ritual that began with its $225 estimate for last year's iPhone 7: strip the device down, price the parts, and show that Apple's gross-margin structure survives each hardware generation intact. The headline finding is stability — material costs rose about $10 year over year, but the parts-to-price ratio held at roughly 35% because Apple raised the entry price alongside the bill of materials.
The description flags what comes next: a bigger change to the business formula with the iPhone X. That lands six weeks later, when TechInsights puts the $999 iPhone X at a 64% gross margin versus 59% for the iPhone 8 — evidence that Apple's answer to rising component costs is a premium tier priced well above the traditional base model.
First-order effects
- Apple absorbs a ~$10 jump in base-model material costs without margin erosion by shifting buyers to a 64GB entry configuration at a higher price point than the 32GB iPhone 7 it replaces.
- Memory and component suppliers capture more content dollars per device sold, since every base iPhone now ships with double the storage of the prior generation.
Second-order effects
- Rivals face a pricing benchmark rather than a cost one: Google's Pixel XL had already shown (per IHS) that a $769 Android flagship could beat Apple's margin on the 32GB iPhone 7, so the iPhone 8's stable 35% ratio pressures competitors to hold prices up instead of discounting into Apple's band.
- Teardown firms like IHS and TechInsights become a de facto earnings-season input for investors, with each new iPhone launch triggering dueling BOM estimates that frame the margin narrative before Apple reports.
Third-order effects
- If the pattern holds — and later estimates suggest it does, from the XS Max's $443 build cost to the iPhone 15 lineup running ~10% more expensive components than the 14 — Apple's structural response is annual price increases plus tiering, pushing the flagship ever further above the base model rather than compressing margin.
- The durable consequence is a two-track iPhone economics model: the base model defends volume at a constant parts-to-price ratio while the premium tier absorbs component inflation, making Apple's blended margin increasingly dependent on how many buyers trade up.
The trend: Apple is managing relentless component-cost inflation through annual price increases and a widening premium tier, keeping gross margins near two-thirds even as bills of materials climb generation over generation.