Here's how much money Apple makes when you buy a 64GB iPhone instead of a 16GB model
That's because Apple makes a lot more money if you spend an extra $100 to buy the 64 gigabyte version of the iPhone 6s, 6s Plus, or the recently announced iPhone SE.
In fact, most of that extra $100 is profit, according to an estimate from the technology market research firm IHS.
Wayne Lam, a principal analyst at IHS Technology, told Tech Insider on Friday that it only costs Apple about $12 more to build the 64 gigabyte model than the 16 gigabyte model.
But Apple then turns around and sells you that phone with more storage for $100 more, meaning that about $88 of that is profit.
Lam said that Apple's cost can change over the production life of an iPhone, as storage prices tend to fluctuate. And since the SE isn't out yet, we'll also have to wait until IHS does a full teardown analysis next week to see the exact prices of components that make up the latest iPhone.
Lam also told Tech Insider that Apple "has long used this product strategy to improve their overall blended gross margins on their iPhone line." In other words, it's a great way to increase how much profit the company makes from its iPhones, which Henry Blodget, Business Insider's editor in chief, has called "a magic profit machine."
Apple declined to comment, but Apple CEO Tim Cook said last year that "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."
The 16 gigabyte iPhone issue is one I'm passionate about and have written about quite a few times. Although I think that the new iPhone SE is an incredible value, I still suggest that you pay $100 more to buy a 64 gigabyte model.
Between apps, 12-megapixel photos, 4K videos, Apple's new gif-like Live Photos, not to mention the operating system required just to use the device, many people will find that a 16-gigabyte iPhone will fill up very quickly. It's just not enough storage for most people in this day and age.
Flagship phones from other phone companies, like Samsung, LG, and HTC, start at 32 gigabytes of storage. Lam was quick to point out that not all phone companies have the same strategy as Apple, which is, first and foremost, a hardware company, so it's not necessarily a fair comparison
Samsung, for example, is vertically integrated, so it makes some of its own components, like its displays and memory. "Therefore it's strategically important for them to create demand for their AM-OLED technology," Lam said, referring to the display found on the top of the line Samsung smartphones.
My own view has been that leaving the base model at 16-gigabytes is a smart tactical move for Apple to get people to shell out $100 more for the next model up, which at 64-gigabytes, of course, has four times the storage. It's what I would tell anyone who asks for my advice about which iPhone to buy.
The decision is great for Apple's bottom line and for investors, but not always for customers.
That said, there are some people who would be fine with a 16-gigabyte phone:
- If you don't take a lot of photos or videos, don't care about downloading movies to watch on flights, don't store music on your phone, and don't use a lot of apps, then 16 gigabytes could work for you.
- If you're very savvy and organized and you frequently offload everything from your phone to the cloud, it could work. (Lam said that having a 16 GB base model helps sell iCloud, the company's cloud service, as people may want to use it to backup the contents of their phone.)
It's not impossible to use a phone with limited storage - it's just not a great experience.