As usual, the most lucrative feature of this year’s iPhones is flash storage

iPhone XS Max storage cost

The most lucrative iPhone feature is storage—Apple makes an estimated $218 more profit per iPhone XS or iPhone XS Max unit versus the base models with 64 gigabytes of storage.

According to the IHS Markit data shared yesterday by Bloomberg, Apple is paying for the NAND flash chips in the 64/256/512GB iPhone XS an estimated $23.68/$66.24/$132.48. In other words, the jump in flash storage capacity costs Apple $132 in NAND chip—yet the Cupertino firm charges a $350 premium for the top-of-the-line 512 GB model.

Because of this, IHS Markit’s Wayne Lam called flash storage “absolutely the most profitable iPhone feature.” And it’s been like this since the original iPhone, if I may add.

Lam commented:

Storage is one of their levers to create more revenue and is absolutely the most profitable iPhone feature. Adding more isn’t much work for Apple, because it just means swapping a chip whereas when you increase the screen size, you have to completely re-engineer the phone.

It’s interesting to me that these storage bumps have actually increased in price.

It used to be that iPhone storage increments added a $100 on top of the entry-level handset. Following its September 2017 debut, an iPhone 7 with 128 gigabytes of storage set you back a hundred bucks more than the same model with 64 gigabytes of storage.

But 2017’s iPhone X altered the price matrix by reducing storage tiers to two—64GB and 256GB—and increasing the 256GB price by $150. According to the Bloomberg report, Apple profited approximately $107 per each 256GB iPhone X or iPhone 8 sold before the new models arrived.

Fast forward to 2018 and we now are required to pay $150 to quadruple the iPhone XS storage from the base 64GB ($99) to 256GB ($1,149) while the jump from 256GB to 512GB ($1,349) is an additional $200. Similarly, opt for an iPhone XS Max and going from 64GB ($1,099) to 256GB ($1,249) and you’ll pay an extra $150. The 512GB model ($1,449) is an additional $200.

iPhone XS and iPhone XS Max logic board images courtesy of iFixit

Upselling customers to the new 512GB storage option could make the Cupertino technology giant $241 more per iPhone XS than the 64GB model, which amounts to an increase from $107 between the highest and lowest storage tiers in last year’s iPhone X models.

This is how you become a trillion dollar company.

Although flash storage has decreased over the years, Apple is now profiting event more on high-end models with the most storage rather than pass those savings to buyers.

As Bloomberg noted:

The market price of NAND flash memory is about half what it was a year ago, according to InSpectrum Tech data. But Apple isn’t passing the savings on to consumers: The 78¢-per-gigabyte charge hasn’t budged since last year.

Of course, Apple uses contracts to lock in the price of such components as NAND flash so it may not be benefiting yet from recent price declines. So far, though, storage costs customers more on an iPhone than on, say, a Samsung Note 9. Samsung charges 65¢ per gigabyte to move from the 128GB Note 9 phone to the 512GB model.

For guidance, iPhone storage cost used to be about 25 cents per gigabyte.

A recent research note by revered analyst Ming-Chi Kuo estimates that iPhone XS Max is considerably more popular than the smaller iPhone XS, selling three to four times better. Most folks are apparently picking up the 256GB iPhone XS Max model, as per Kuo’s checks. Space Gray and the new Gold finish are the most popular color options.

A report from TechInsights earlier this morning broke down bill of materials for the flagship iPhone XS Max, revealing that the single most expensive part in the device is still the OLED display although the Cupertino technology giant actually save some money this time around by taking out some unspecified 3D Touch part, without affecting the feature’s capability.

Would you agree that 256GB is the optimal storage size for these new Apple smartphones? Is 64GB insufficient for the normals? If so, should the base model start at 128GB?

Let us know by leaving a comment below.

Photo: iPhone XS/Max teardown analysis, courtesy of iFixit