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Smartphone prices are higher than ever, are we being ripped off?

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© nextpit

The prices of smartphones in the last three years have skyrocketed. The flagships of 2017 reached a whopping $1,000, and that's a lot of money. It may be worth it for some people, but the inevitable question arises: How much does it really cost to make a smartphone? Are we being ripped off?

How much do the components cost?

The price of a smartphone is a simple figure, made up of very complex parts. Here we're going to focus on what each individual component costs and try to get an idea for the end result. Of course, we will have to exclude the developer investment costs, but let's take a look into the rest of the expenses.

It's important to note that these figures only make up half of the cost, otherwise you may feel extremely cheated when you take a look at these numbers!

IHS Markit published the material costs for Apple's latest device, the iPhone X, revealing that it has a higher material cost at $370 than the Samsung Galaxy S8, which according to a news report from IHS, costs $307 to make. The iPhone X costs consumers a hefty $999, with the manufacturing cost being around 37% of the total price, and the Galaxy S8 costs about $720, around 42% of the total.

The graph below demonstrates these price differences:

chart IHS
Figures released by IHS Markit / © NextPit

In the graph we see how the most expensive components are the display, body, cameras and processor, which in both devices account for more than half of the cost of components. After this, we also have to add the manufacturing costs, which basically refers to the process of assembling it together. This varies from one device to the other and can range from $3 to $20. For the S8, the manufacturing expense is $5.90.

What profit margins do manufacturers make?

As you can see, making a smartphone costs considerably less than the final price of the device. But that difference isn't all the manufacturer wins. The price of the device must also be deducted from the distribution costs, research costs, development costs and most importantly, marketing and advertising.

At the end of 2017, WIPO (World Intellectual Property Organization) published a report that included the profits manufacturers gain when selling a smartphone. WIPO gave us three examples: the Samsung Galaxy S7, the iPhone 7 and Huawei P9.

The WIPO profit margin for these three devices according to the global average price was 34% for the S7, and 42% for iPhone 7 and P9. So it seems that for the top range of the three largest manufacturers in the world, the profit margin is quite high. But not everyone makes money with their smartphones. LG, Motorola and Sony are three good examples of how making a profit by selling smartphones is difficult if you aren't a top player in the market. As usual, the top seller earns the most.

What's most shocking is that the number of sales aren't affected even though the prices of high-end devices continue to go up. I have my own social theory for this: they have become yet another symbol of status and recognition, the same as with clothes or cars. 

Do you feel ripped off? Have smartphone prices reached the maximum with the latest flagships?

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Luis Ortega

Luis Ortega

Luis is an editor and moderator of the forum. He was born and raised in Granada where he studied Geology and Education. After many professional experiences, he landed at AndroidPIT in 2015. A confessed geek, Luis likes open source software and, of course, Android. He loves apps that manage bad memory and make life easier. He loves the sea and enjoys his free time on any kind of board.

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  • marco sarli 39
    marco sarli
    • Admin
    Aug 25, 2019 Link to comment

    Way to expensive. I live in Vietnam and I and my family have phones from a local company, Mobiistar that does very little advertising,no flashy presentations of new models and very little modifications so the os is vanilla android. Technical specs are always very good, price is much lower than phones with the same hardware and technical assistance good and fast. So it can be done

    • 1
      JSS Oct 14, 2019 Link to comment

      Mobiistar company is a thief. It came to India sold phones and ran away..and customers are not getting warranty as promised.

  • 1
    Garfield357 Jun 30, 2018 Link to comment

    I compiled a list of phones that were available on the four major carriers (AT&T, Verizon, Sprint, T-mobile) in the U.S. and, as a point of reference, I also checked the price of similar devices with no carrier lock as offered on Amazon. For each device, I went with the cheapest option available on the market for that given line.

  • 7
    avensis david May 21, 2018 Link to comment

    the manufacturers exaggerate.

    UC Browser SHAREit MX Player

  • 1
    techie May 3, 2018 Link to comment

    Are you really happy being ripped off? Do you buy a TV expecting it to last a couple of years? Do you buy a Laptop or desktop computer expecting it to last a couple of years? You will usually pay less for these items than you will for a cellphone. I mean Android is free has to be one of the most stupid remarks ever made. Android isn't free. You have to buy something in order to get the software, then you are at the mercy of the manufactures or carrier you subscribe to, hoping you will receive updates. Many times you aren't even getting basic security updates. Two years of updates if you are lucky. Who thinks it OK to charge absolutely ridiculous prices and then not support it? I certainly don't. Do you think your information is really secure? Using banking and credit card information isn't smart on any cellphone. I'm not advocating for any cellphone manufacture. I mean Apple abandons customers as well. How many cellphones have you thrown into a box? It doesn't make any difference how fast it. The primary issue is it's a consumer ripoff. It's a danger to the consumers and many will continue to use the cellphone without security issues being patched or receiving any updates. The FCC needs to regulate cellphone security. Do you expect Microsoft to give you security updates or Apple Mac? Why is it any different with a smart phone, I mean dumb phone, because the industry is failing to protect the consumer. You have carriers trying to get you to contract a phones, some older models that are already outdated. The sustainability of these devices are not a good scenario. The other major problem is these manufactures are not being transparent with the consumers. Think about how many people have had there information stolen, it's easy with a poorly designed security policy. FCC really needs to look at this. There really is no consumer protections.

  • David Martrano 29
    David Martrano Feb 22, 2018 Link to comment

    I paid 540.00 for my s8+ with 300.00 off. Upgraded my s7edge, for myself this was an excellent deal. Very happy with my purchase. I use the forever program with Verizon so now I'm considering the 9+, maybe. I like the 845 processer, 6gb's & duel camera's. But if I have to keep the s8+ another year, it wouldn't be a problem. Love the display & performance!

  • Mark G. 28
    Mark G. Feb 22, 2018 Link to comment

    I think we're coming to the point where price will be a major factor, especially if you were used to buying your phone on the contract with a network. My S7 cost £27 p/m my brothers S8 cost £50 p/m (granted they "gave" 40GB of data). When I come to upgrade I suspect the S9 will be £60+ p/m which is getting to be unsustainable especially as general inflation is going up whilst wages are suppressed.

    When I do upgrade I will most likely go direct to Samsung - though my S7 will be perfectly fine to continue with.

    Manufacturers have convinced us that we need to keep upgrading to newer technologies, whereas most of these advancements do very little in making things easier or more convenient. Take the Iris scanner and face recognition and even fingerprint sensor, my S7 will work just as good, and is no less secure than the above mentioned features.

    I would suspect that the vast majority of people would rather have a reliable and stable device, with a decent processor, memory and battery.

    Peace 🖖

  • Dean L. 34
    Dean L. Feb 22, 2018 Link to comment

    The smartphone manufacturers will price according to what they think the market can bear and what the consumer will pay. I just upgraded to a pixel 2 but only when my carrier offered up $300 off. This way I was able to get more for my hard earned buck. It will be interesting to see if the price hikes continue in 2018.

  • 28
    itprolonden Feb 22, 2018 Link to comment

    How an it be extortion if you pay for it and you have other choices. SJW much?

    Dean L.

  • 21
    Peter Harwood Feb 21, 2018 Link to comment

    Its simple if they are to much dont buy them they'll soon bring the price down or go out of business.

    Dean L.itprolonden

  • 26
    Andrew Burgin Feb 21, 2018 Link to comment

    We went through this in SMART tvs until the companies realised there sales were struggling and are now more affordable,phone companies keep adding features to phones that keep adding to the upgrade in prices,o.k people want a Top phone all the time but soon,people will soon be keeping more loyal to the phone they have if prices keep going up,Apple start a trend by overpricing there phones,so companies like Samsung think if Apple can do it an get away with overpricing why can"t we, there been no improvement in batteries for phones for ages with All the money they are making seems very odd indeed

    Dean L.

  • Rusty H. 33
    Rusty H. Feb 21, 2018 Link to comment

    I'm hoping that now that the "one thousand" dollar price barrier has been breached, HOPEFULLY people will start to see phones as just "a thing" and start to question how much value, am I getting from a 2018 and beyond phone, that I wasn't getting from a 2017 phone. We all know that typically, other than benchmarks, and maybe a unique 3D gaming app, 99% of the people using smartphones, don't really need all of that horsepower. Personally, I think the entire industry was smart to jump on the "sexy, colorful, thin & stylish" aspect of the phone, along with the gotta-have-what-(insert name of some moronic hollywood person here)-is-using trendy crap.
    I've been an electronic nut since I was 12 years old in the early 70's, have a degree in electronics, started working in a television shop in high school (the age of vacuum tubes!). I've watched the 1,000+ dollar VCR that was HUGE, heavy and could record a 2 hour tape, drop to 200-300 dollars, get replaced by laser disks, CD/DVD's that were 1,000+ to next to nothing, large CRT televisions replaced by plasma, LCD, LED TV's that were several thousand dollars, DROP in price (my parents just replaced a 32" LCD tv bought in 2006, over 1,000 dollars with a 35" LED tv costing less than 350 today). In other words, throughout the course of "gadgets", the features, speed factor typically goes UP, and the price comes DOWN. But the smartphone industry, up to now, has been able to buck the trend. Why? Consumers, to some extent aren't smart. They just look for new, flashy trendy things. But, now that the trend shows the smartphone market is somewhat saturated, perhaps with the $1,000 price barrier smashed by Apple, people will pull their heads out of the sand, and say wait a minute? Why am I paying 1,000 for a smartphone, that is almost like last years model again? Dual cameras? Brighter displays? More memory? Faster processors? For what?? Texting, twitter, FB, browsing, streaming??? I can do that on my CURRENT phone, and be $1,000 richer. If that happens, the price will HAVE to come down to reality.

    Dean L.

  • 16
    nightflyer2131 Feb 21, 2018 Link to comment

    It's aldry way way to much granted I love the N8 but shit will I buy another phone any time soon don't think so god willing

  • 13
    Mark S. Feb 21, 2018 Link to comment

    A few years ago a "small company" from China was supposed to buck this trend. Now even Oneplus phones can't be considered "budget." It's simple economics though. If people keep buying the expensive phones, the prices will keep going up. It'll be interesting to see how much is too much.

    Dean L.itprolondenRusty H.

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