Apple (NASDAQ: AAPL) is packing a ton of advanced features into its new flagship iPhone X, which is why it's bumping the price all the way up to $1,000 for a base 64 GB model. That's a significant premium compared to the company's historical pricing model. Investors may think that at $1,000, Apple will be enjoying a lucrative gross margin on the device, but at least one analyst thinks the exact opposite will be true.
The iPhone X is going to be crazy expensive to build.
At what cost?
Susquehanna estimates that the iPhone X bill of materials (BOM) totals an astounding $581, according to The Wall Street Journal. That's a huge difference compared to the estimated iPhone 7 BOM of $248. These estimates, if accurate, would represent the hardware margin associated with iPhone X. There are many other factors that go into overall gross margin, such as marketing costs, software development costs, warranty and return accruals, and amortization of manufacturing infrastructure.
Data sources: Wall Street Journal and author's calculations.
Display panels are typically the most expensive component, and KGI Securities recently estimated that Samsung was charging Apple $120 to $130 for the new OLED panels, compared to traditional LCD panels that cost $45 to $55. That display is undoubtedly the most meaningful cost driver. Meanwhile, the vertical-cavity surface-emitting lasers (VCSELs) that are a core piece of the TrueDepth camera system are estimated to only cost about $4 to $5.
Even with a $1,000 price tag, the iPhone X may not be that profitable initially, but that should improve over time. Generally, Apple always starts at the height of the cost curve when it redesigns products, in large part due to investing in new manufacturing infrastructure, and iPhone X is no different. If anything, the impact should be more pronounced, since this is the most radical redesign in years, combined with significant increases in component costs.
Evolution of the iPhone
Evolution of the iPhone
Apple chief executive Steve Jobs unveils a new mobile phone that can also be used as a digital music player and a camera, a long-anticipated device dubbed an 'iPhone.' at the Macworld Conference 09 January 2007 in San Francisco. Cisco and Apple announced 21 February 2007 that they had settled their trademark lawsuit over Apple's use of the name iPhone for a new portable device that includes mobile phone features. Cisco sued Apple after the Cupertino, California, maker of iPod MP3 players and Macintosh computers had grandly launched an iPhone device on January 9 with camera, digital music player, and mobile telephone capabilities.
(TONY AVELAR/AFP/Getty Images)
The new Apple iPhone is displayed behind a glass enclosure at the Macworld Conference 09 January 2007 in San Francisco. Apple Computer CEO Steve Jobs made the company's long-awaited jump into the mobile phone business during the annual Macworld conference and expo.
(TONY AVELAR/AFP/Getty Images)
Customers look at computers beneath an advertisement for the Apple iPhone in the Apple Soho store June 27, 2007 in New York City. Hype for the iPhone, which will cost $499 or $599, has driven demand into overdrive as it will be released at 6:00 p.m. June 29 nationwide.
(Photo by Mario Tama/Getty Images)
The new iPhone is seen inside the Apple Store in New York, June 29, 2007. Hundreds lined up on Friday outside the Apple store hours before the iPhone, a combination widescreen iPod, cellphone and pocket Internet device, went on sale at Apple's 164 stores and nearly 1,800 AT&T stores.
People queue to buy the newly released Apple iPhone on the first day of its Japanese launch outside a SoftBank Mobile's flagship store on July 11, 2008 in Tokyo, Japan. The iPhone 3G, priced at 23,040 yen (US $215.25) for the 8GB and 34,560 yen (US $322.82) for the 16GB in Japan, is a multimedia mobile device with a touch screen that enables email and web browsing, as well as being a portable media player.
(Photo by Kiyoshi Ota/Getty Images)
A 16GB iPhone 3G sits on display in the Apple store in the SoHo neighborhood of New York, U.S., on Friday, July 11, 2008. Apple Chief Executive Officer Steve Jobs is aiming at Research In Motion Ltd.'s BlackBerry as the iPhone 3G goes on sale in 22 countries today, almost quadrupling the markets for the handset, which has better audio quality, lets users run software from outside developers and adds support for corporate e-mail systems.
(Photo by Gino Domenico/Bloomberg via Getty Images)
Apple Corporation CEO Steve Jobs speaks about the new iPhone 3G during his keynote speech at the Apple Worldwide Developers Conference in San Francisco, California June 9, 2008.
New iPhone 3G waits for purchase at the Apple Store on July 11, 2008 in Los Angeles, California. New iPhone buyers, along with owners of the previous version who were upgrading to newer software, experienced massive gridlock on the phone's network as millions attempted to activate, or upgrade service.
(Photo by Valerie Macon/Getty Images)
An Apple iPhone 3GS sits on display inside an AT&T store in New York, U.S, on Thursday, July 23, 2009. The Federal Communications Commission (FCC) is examining whether AT&T Inc. and Verizon Wireless stymie wireless competitors by denying them connections and making it hard for subscribers to switch providers. The agency said June 18 it was investigating whether consumers are shortchanged by carriers' exclusive contracts for wireless handsets, such as deals linking Apple Inc.'s iPhone to AT&T.
(Photo by Daniel Acker/Bloomberg via Getty Images)
A posed picture shows a fake iPhone 3GS charging next to an Apple logo on a Macbook Air laptop in Beijing July 22, 2011. A fake Apple store in China, made famous by a blog that said even the staff working there didn't realize it was a bogus outlet, is probably the most audacious example to date of the risks Western companies face in the booming Chinese market. The less-publicized phenomenon of unauthorized vendors setting up shop to peddle real products has grown alongside China's manufacturing prowess. Many of the factories that produce brand-name goods on contract have been known to do extra runs of the goods to make extra cash, analysts say.
Employees work with the Apple iPhone 3GS at the company's retail store in San Francisco, California June 19, 2009. Apple Inc's latest iPhone hit stores on Friday with new features and faster speeds, drawing some fans, but not the crowds that had swarmed the previous iPhone launches.
Apple CEO Steve Jobs discusses the new iPhone 4 during the Apple Worldwide Developers Conference in San Francisco, California June 7, 2010.
New iPhone 4 models are displayed after Apple CEO Steve Jobs unveiled it during the Apple Worldwide Developers Conference in San Francisco, California, June 7, 2010.
An iPhone 4S is seen at Apple's flagship retail store in San Francisco, California October 14, 2011. Apple Inc's new iPhone 4S went on sale in stores across the globe on Friday, prompting thousands to queue around city blocks to snap up the final gadget unveiled during Steve Jobs' life.
A collection of white Apple iPhone 4S smartphones, photographed during a studio shoot for Tap Magazine, May 12, 2011.
(Photo by Joby Sessions/Tap Magazine via Getty Images)
Phil Schiller, vice president of worldwide product marketing at Apple Inc., speaks during an event at the company's headquarters in Cupertino, California, U.S., on Tuesday, Oct. 4, 2011. Apple Inc., in its first product unveiling since Steve Jobs resigned as chief executive officer, introduced a faster iPhone with voice features and a higher-resolution camera to help it vie with Google Inc.'s Android.
(David Paul Morris/Bloomberg via Getty Images)
Apple's new iPhone 5 smartphone is on display in an Apple store, on September 21, 2012 in Paris. The iPhone 5 goes on sale on September 21, 2012 in the United States, Canada, Britain, France, Germany, Australia, Hong Kong, Japan and Singapore.
The Apple Inc. iPhone 5 is displayed inside the company's store on George Street in Sydney, Australia, on Friday, Sept. 21, 2012. Apple Inc. is poised for a record iPhone 5 debut and may not be able to keep up with demand as customers line up from Sydney to New York to pick up the latest model of its top-selling product. The device hits stores in eight countries today at 8 a.m. local time, giving customers in Australia the first chance to buy the device.
(Ian Waldie/Bloomberg via Getty Images)
An employee tests the fingerprint scanner on the new Apple iPhone 5S at a Verizon store in Orem, Utah September 19, 2013. The iPhone 5C, which comes in blue, green, pink, yellow and white, starts in the U.S. at $99 with a contract and the pricier "5S" begins at $199 with a contract. Both models go on sale in several countries on September 20.
The gold colored version of the new iPhone 5S is displayed after Apple Inc's media event in Cupertino, California September 10, 2013.
Jesse Green from London poses with his iPhone 5S (L) and 5C (R) after being the second person to enter the Apple store after they went on sale in central London on September 20, 2013. Apple's eagerly-awaited iPhone 5S and 5C went of sale in London at 8am.
(BEN STANSALL/AFP/Getty Images)
An employee shows the the backside of a new Apple iPhone 5C (R) and iPhone 5 S (L) at a Verizon store in Orem, Utah September 19, 2013. The iPhone 5C, which comes in blue, green, pink, yellow and white, starts in the U.S. at $99 with a contract and the pricier "5S" begins at $199 with a contract. Both models go on sale in several countries on September 20.
A new Apple iPhone 5C is on display at a Verizon store in Orem, Utah September 19, 2013. The iPhone 5C, which comes in blue, green, pink, yellow and white, starts in the U.S. at $99 with a contract and the pricier "5S" begins at $199 with a contract. Both models go on sale in several countries on September 20.
The new iPhone 5C is displayed during an Apple product announcement at the Apple campus on September 10, 2013 in Cupertino, California. The company launched the new iPhone 5C model that will run iOS 7 is made from hard-coated polycarbonate and comes in various colors and the iPhone 5S that features fingerprint recognition security.
(Photo by Justin Sullivan/Getty Images)
Tim Cook, chief executive officer of Apple Inc., unveils the iPhone 6 and iPhone 6 Plus during a product announcement at Flint Center in Cupertino, California, U.S., on Tuesday, Sept. 9, 2014. Apple Inc. unveiled redesigned iPhones with bigger screens, overhauling its top-selling product in an event that gives the clearest sign yet of the company's product direction under Cook.
(David Paul Morris/Bloomberg via Getty Images)
A new Apple iPhone 6 Plus stands on display at the Apple Store on the first day of sales of the new phone in Germany on September 19, 2014 in Berlin, Germany. Hundreds of people had waited in a line that went around the block through the night in order to be among the first people to buy the new smartphone, which comes in two versions: the Apple iPhone 6 and the somewhat larger Apple iPhone 6 Plus.
(Photo by Sean Gallup/Getty Images)
An Apple Inc. iPhone 6 Plus, left, and iPhone 6 are displayed for a photograph inside SoftBank Corp.'s Omotesando store during the sales launch of the iPhone 6 and iPhone 6 Plus in Tokyo, Japan, on Friday, Sept. 19, 2014. Apple stores attracted long lines of shoppers for the debut of the latest iPhones, indicating healthy demand for the bigger-screen smartphones.
(Yuriko Nakao/Bloomberg via Getty Images)
The new iPhone 6s Plus are display in a Softbank store at the high-end shopping district of Ginza in Tokyo, Japan, on Sept. 25, 2015. Apple sold its new iPhone 6S and 6S Plus in Japan.
(David MAREUIL/Anadolu Agency/Getty Images)
Apple CEO Tim Cook introduces the new iPhone 6s and 6s Plus during an Apple media event in San Francisco, California on September 9, 2015. Apple unveiled its iPad Pro, saying the large-screen tablet has the power and capabilities to replace a laptop computer.
(Josh Edelson/AFP/Getty Images)
Apple Inc. iPhone 6s smartphones stand next to packaging boxes in an arranged photograph in Hong Kong, China, on Friday, Sept. 25, 2015. The latest models, following last year's hugely popular design overhaul that added bigger screens, may not match the success of previous releases, according to analysts.
(Xaume Olleros/Bloomberg via Getty Images)
An iPhone 6S Plus is seen at the Apple retail store in Palo Alto, California September 25, 2015.
The new Apple iPhone 6S and 6S Plus are displayed during an Apple media event in San Francisco, California, September 9, 2015.
Apple Vice President Greg Joswiak introduces the iPhone SE during an event at the Apple headquarters in Cupertino, California, March 21, 2016.
(REUTERS/Stephen Lam/File Photo)
A rose gold iPhone SE (R) and an iPhone 6S Plus are seen at an Apple Store on March 31, 2016 in Hangzhou, Zhejiang Province of China. Apple launched a new 4-inch iPhone SE globally on Thursday. Apple's new 4-inch iPhone SE packs almost all the power and features of the iPhone 6s into a package as small as - and even more affordable than - the iPhone 5s it replaces.
(Photo by VCG/VCG via Getty Images)
An iPhone 7 is displayed in a store in London, Britain October 4, 2016.
Apple's new iPhone 7 smartphones sit on a shelf at an Apple store in Beijing, China, September 16, 2016.
Phil Schiller, Senior Vice President of Worldwide Marketing at Apple Inc, discusses the camera on the iPhone7 during an Apple media event in San Francisco, California, U.S. September 7, 2016.
A customer touches the screen of an iPhone 7 inside the new Apple store Saint-Germain during the first opening day on December 03, 2016 in Paris, France. This store employs 120 people and has an area of 1,300 m2, it is the largest in the capital and it is the first in France to embrace the new design codes chosen by Apple for its shops. Apple store Marche Saint-Germain is the third store in Paris, the 20th in France and the 110th in Europe and will be the 489th in the world.
(Photo by Chesnot/Getty Images)
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A word of caution from Tim Cook on third-party estimates
It's also worth noting that CEO Tim Cook once advised investors not to put too much stock in the third-party BOM estimates that regularly appear (typically around product launches). On the Q2 2015 earnings call, Cook said (emphasis added):
And I haven't even seen this, but generally, there's cost breakdowns that come out around our products that are much different than the reality. I've never seen one that is anywhere close to being accurate. And so if that's the basis for your comment, I'd really dig on the data if I were you.
Cook was referring specifically to Apple Watch gross margin, but his sentiment applies generally. Even if Susquehanna's estimates aren't "close to being accurate," there should be little doubt that the iPhone X's cost structure is going to be elevated, and Apple is just passing along those costs on to consumers while potentially accepting lower gross margins in the process.
Evolution of cell phones, smartphones
Evolution of cell phones, smartphones
UNSPECIFIED - AUGUST 02: M2 Pocket Phone, manufactured by Excell Communications. Displayed with its headphones, leather protective case and user guide, the phone weighs approximately 0.75 kg. (Photo by SSPL/Getty Images)
UNSPECIFIED - AUGUST 02: Rabbit telepoint telephone by Hutchison Personal Communications Ltd, together with park and charge unit. Size of telephone is 400mm by 350mm by 100mm and weighs approximately 3kg. Rabbit was a British location-specific (Telepoint) telephone service backed by Hutchison, who later went on to create the Orange GSM mobile network. The Rabbit network was the best-known of four such services introduced in the 1980's, the others being Phonepoint, Mercury Callpoint and Zonephone. Although Hutchison had been issued a licence for Rabbit in 1989 it took until May 1992 before the service was launched. Telepoint services such as Rabbit allowed subscribers to carry specially designed (CT2) home phone handsets with them and make outgoing calls whenever they were within 100 metres of a Rabbit transmitter. (Photo by SSPL/Getty Images)
UNSPECIFIED - AUGUST 08: Mobile cellular telephone model M200 by Siemens AG, with one2one branding, less battery pack, 1991-2000 Dimensions: 190 by 65 by 35mm, weighing approximately 0.5kg. (Photo by SSPL/Getty Images)
UNSPECIFIED - AUGUST 02: Mobile cellular telephone, mobile Phone manufactured by Motorola, weighing approximately 0.75 kg. (Photo by SSPL/Getty Images)
UNSPECIFIED - AUGUST 02: The Vodac, by Vodaphone was produced between 1991-2000 and weighed approximately 0.5 kg. (Photo by SSPL/Getty Images)
UNSPECIFIED - AUGUST 08: Mobile cellular telephone model CM-H333 by Sony sitting in its charging stand. Dimensions: 185 by 55 by 70mm and weighing approximately 0.5 kg (Photo by SSPL/Getty Images)
UNITED STATES - DECEMBER 09: The Motorola company was founded by Paul V Galvin as the Galvin Manufacturing Corporation, in Chicago, Illinois, in 1928. In the 1930s the company began promoting portable car radios under the brand name ï¿½Motorolaï¿½ (a word suggesting sound in motion), and the company name was changed to Motorola Inc in 1947. By the end of the 1980s, Motorola had become the biggest worldwide supplier of cellular telephones. When it was launched in 1996, the pocket-sized StarTAC, at just 93g (3.1 ounces), was the worldï¿½s smallest phone and the first to operate continuously with dual detachable batteries. This example was manufactured by Motorola Inc in the United States. (Photo by SSPL/Getty Images)
UNITED KINGDOM - JUNE 20: Taking mobile phones apart by hand and sorting the pieces for recycling is expensive. This phone was designed by Joseph Chiodo, a researcher at Brunel University in Surrey, to 'recycle' itself. It is made from special metals and plastics which have 'memories' of their original shape. When heated up, they lose their current form and revert to the shape they remember: different parts are triggered to change shape at different temperatures. The phone then ï¿½popsï¿½ apart, ready for recycling. Pieces can be picked out for reuse and the parts containing toxins can be separated. (Photo by SSPL/Getty Images)
JAPAN - FEBRUARY 15: Launched on the 1st September 2000, the Nokia 3310 featured advanced messaging, personalisation with Xpress-on covers and screensavers, vibra feature, time management functions, voice dialling, picture messaging, predictive text input and games. It also introduced ï¿½mobile chatï¿½ using the Nokia Friends-Talk service, which allows users to have conversations using SMS (Short Message Service). This is a globally accepted wireless service that enables the transmission of messages between mobile users and external systems such as e-mail, paging, and voice-mail. (Photo by SSPL/Getty Images)
SINGAPORE, SINGAPORE: Shares order are displayed on the screen of mobile phone which uses the Wireless Application Protocol (WAP) services for e-trading in a demonstration at the launching of Asia Pacific's first Mobile E-Trading on WAP in Singapore 09 March, 2000. Singapore's leading retail stockbroking firms, Ong & Company Partners, signed an agreement in partnership with SingTel Mobile for for the co-marketing in the e-trading service called iROAM, the first transactional service of its kind to utilize the WAP platform in the Asia-Pacific region. (ELECTRONIC IMAGE) AFP PHOTO/Roslan RAHMAN (Photo credit should read ROSLAN RAHMAN/AFP/Getty Images)
CANNES, FRANCE: Shown is Sendo International's Z100 multimedia smartphone at a news conference during the GSM World Congress in Cannes, France February 21, 2001. The Z100 phone features a color screen and runs on the Microsoft smartphone platform. The phone also features Microsoft's Mobile Explorer for the Internet, Mobile Outlook, a Windows Media player and USB connectivity. The phone will be on the market in the autumn of 2001. AFP PHOTO/JEFF CHRISTENSEN (Photo credit should read JEFF CHRISTENSEN/AFP/Getty Images)
Young girls using mobile phones. (Photo by Jeff Overs/BBC News & Current Affairs via Getty Images)
SEOUL, REPUBLIC OF KOREA: A South Korean model displays a LG Electronic new DMB (digital multimedia broadcasting) mobile phone handsets which can show television broadcasts real time during an exhibition in Seoul on 15 November 2004. The South Korean electronics firm claimed the handsets were the world's first ground-wave DMB mobile phone. AFP PHOTO/WANG JUN-YOUNG (Photo credit should read WANG JUN-YOUNG/AFP/Getty Images)
CellphoneCamera-Sept. 20, 2005-Photo Illustration of cell phone camera use. As camera phones grow more common, expect to see more incidents such as the man facing mischief and harassment charges after a suspect was caught taking lewd photos of little girls in a Toronto grocery store. Already there is a term for such behaviour: 'upskirting' and 'downblousing,' (pictures being taken down womens tops) and web sites devoted to the practice. (Photo by Tannis Toohey/Toronto Star via Getty Images)
LONDON, ENGLAND - JULY 06: In this photo illustration the Twitter website is displayed on a mobile phone on July 6, 2009 in London. The social network site started in 2006 in California as a sideline project, but has grown into a global brand becoming one of the fastest growing phenomenas of the Internet. (Photo Illustration by Dan Kitwood/Getty Images)
Mobile telephones encrusted with diamond designs sit on display 23 November 2007 at one of Europe's most exclusive and trend-setting lifestyle trade fairs the Moscow Millionaire Fair 2007 in Moscow. The fair hosts the top names of the international luxury goods industry. AFP PHOTO / DIMA KOROTAYEV (Photo credit should read DIMA KOROTAYEV/AFP/Getty Images)
BERLIN - NOVEMBER 09: A young man checks out an Apple iPhone at a T-Mobile shop on the first day the mobile phone went on sale November 9, 2007 in Berlin, Germany. T-Mobile has the exclusive conract to sell the iPhone in Germany. (Photo by Sean Gallup/Getty Images)
(GERMANY OUT) several mobile phones on advertising folders - 01.11.2008 (Photo by wolterfoto/ullstein bild via Getty Images)
SPAIN - DECEMBER 02: A consumer holds Nokia's new handset the N97, during the Nokia World 08 event in Barcelona, Spain, on Tuesday, Dec. 2, 2008. Nokia Oyj, the world?s biggest maker of mobile phones, unveiled a new handset featuring a touch screen and full keyboard to challenge Apple Inc.?s iPhone and Research In Motion Ltd.?s BlackBerry devices. (Photo by Xabier Mikel Laburu/Bloomberg via Getty Images)
Israeli people wait to purchase the new iPhone 3Gs at an Apple store on December 9, 2009 in Tel Aviv, Israel. Hundreds of people lined up at the Apple Store in Tel Aviv to be the first to purchase Apple's new iPhone 3Gs which is faster than the previous iPhone 3G and has several new features. AFP PHOTO / JACK GUEZ (Photo credit should read JACK GUEZ/AFP/Getty Images)
Vertu Ascent mobile handsets are seen after assembly at Nokia Oyj's Vertu luxury phone division in Church Crookham, U.K., on Monday, Sept. 12, 2011. Vertu, started by Nokia Oyj's then-chief designer Frank Nuovo in 1998, has sold more than 300,000 phones in the last decade and seen 'high double-digit sales growth' since the start of 2010, President Perry Oosting said. Photographer: Matthew Lloyd/Bloomberg via Getty Images
PARIS, FRANCE - DECEMBER 07: A Windows phone 7 mobile phone sits on display at LeWeb Paris 2011 at Le 104 on December 7, 2011 in Paris, France. Since beginning in 2008, LeWeb Paris 2011 is the largest technology conference in Europe where Silicon Valley entrepreneurs and the tech world gather while often announcing new products. (Photo by Antoine Antoniol/Getty Images)
An Apple Inc. iPhone 5C smartphone sits on display inside the Orange SA store in Toulouse, France, on Wednesday, Nov. 20, 2013. France's gross domestic product fell 0.1 percent in the three months through September, national statistics office Insee said in an e-mailed statement. Photographer: Balint Porneczi/Bloomberg via Getty Images
NEW DELHI, INDIA - SEPTEMBER 15: Spice Android One Smartphone on September 15, 2014 in New Delhi, India. Running on stock Android the set is priced economically to target at people buying their first smartphone and costumers in developing world. Google manages the design, development, marketing, and support of these devices while all manufacturing are carried out by partnering original equipment manufacturers. (Photo by Pradeep Gaur/Mint via Getty Images)
A customer tries the touch screen feature on the new Apple Inc. iPhone 6s smartphone at a store in San Francisco, California, U.S., on Friday, Nov. 13, 2015. The 12.9-inch Apple Inc. iPad Pro tablet computer was released for sale in stores today and the Apple Pencil is available for order online. Photographer: David Paul Morris/Bloomberg via Getty Images
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