The biggest cell phone ripoff: $100 for 32 GB of storage

“If you paid an extra $100 or even $200 for a smartphone with more storage, you got ripped off,” David Goldman writes for CNNMoney.

“Smartphone makers pay as little as a sixth of what they charge you for those extra gigabytes of storage,” Goldman writes. “And that applies to all of the four largest U.S. smartphone makers — Apple, Samsung, LG or Motorola.”

“The flash storage drives installed in the iPhone 6 cost Apple just $7.55 per 16 GB [$15.10 for 32GB], according to TechInsights, a patent consultant that performs gadget tear-downs,” Goldman writes. “The 32 GB of storage included the Galaxy S6 costs Samsung $14.50,” Goldman reports. “That means the difference between a base model 16 GB iPhone 6 and a top-of-the-line 128 GB iPhone 6 costs Apple about $53. It costs you $200. It’s even worse for a Galaxy S6. The difference between the base 32 GB model and the best 128 GB model costs Samsung $44. But Samsung charges you $200 more.”

Read more in the full article here.

MacDailyNews Take: Apple’s margins fuel R&D. The storage costs are the only differential within iPhone models and those costs “spread the pain” or “spread the wealth,” depending on your perspective, making it possible for Apple to offer such advanced devices at such low starting price points.

So, yes, in effect, 128GB iPhone buyers (like us) are subsidizing 16GB iPhone buyers to some degree. We help make iPhone accessible to hundreds of millions of iPhone users and those vast numbers (or users and dollars) keep the platform extremely vibrant and healthy. Without the storage markups, the iPhone would cost more overall and Apple’s R&D wouldn’t have the carte blanche we want them to have in order to continue pushing the envelope. This is how we get 64-bit smartphones years before everyone else. Ditto for Touch ID, Apple Pay, insanely thin and light MacBooks, etc. And, this is how we’ll arrive at Liquidmetal and sapphire devices which nobody else will be able to replicate. It’s a small price to pay. In fact, we consider it a wise investment.

So, no, if you’re an iPhone owner, you didn’t get ripped off.

Beleaguered Samsung, on the other hand, just uses that markup to keep afloat in the money-losing business of iPhone knockoffs. Oh, and bending the sides of displays for no good reason.

Non-iPhone users have very little or nothing to show for their expense, so, yes, they got ripped off. The whole Android mess is a rip off in myriad ways; of Apple’s patented IP, of users’ security, privacy, experience, etc.

42 Comments

  1. How can they assume that the flash drive price scales linearly with storage capacity ($7.55 per 16 GB)? Unless the 128 GB iPhone is several times larger than the 16 GB iPhone, the drive has to be different (more expensive) to fit 12x the capacity in the same space.

    1. Agreed – flash drive prices do not scale linearly but there is another cost beyond basic components – the 64 and 128 GB units also require their own SKU’s, and because their volumes are lower, the supply chain unit cost is higher particularly to stock each one in three different colors. Not to mention that the full QA testing cost of higher capacity models must be shouldered by much fewer units.

      Retailers understand this so it’s not unusual (as was my case) when I went into a local cellular store to switch all our phones, they had every kind of iPhone in 16 GB versions but the 64 GB silver had to be shipped as they keep those retail inventories low.

    1. MDN is not obligated to be completely fair, honest, unbiased, and nonprejudicial. MDN’s take is predictably skewed in favor of Apple and against anything and anyone else. This is MDN, Apple is always right even when Apple is wrong…period.

      1. Sorry, but I’ve seen MDN blast Apple many times when they thought they deserved it. And although I do think the 128GB is a little overpriced, MDN does have a point.

        Apple’s 128GB iPhone also subsidizes Samsung phones.

    2. I agree. MDN’s take is a little over the top. A little ridiculous. Apple charges the prices they do not because Apple is a do-good company. They do it because they are a smart business.

      1. Yes, but one thing everyone is missing is that Apple prices are not directly connected to the tech specs. Never have been – never will be. It is more about supply and demand, just like the oil industry. $50 a barrel for crude? Is that really what it costs to extract from the ground? No of course not. Anyone who thinks that the prices we pay are via a direct mathematical calculation of the price of the materials plus a percent profit factor is delusional. There are other factors in every price point.

    1. Or if they were paid a fair wage and had decent suitable working conditions? Youre right, its much more important for me to save a few bucks on my $700 iphone than actually worry about something like 70 hour work weeks, carcinogenic materials, worker suicides and a few dollars labour for long, hard days. But I guess the US is used to slaves, and this is one step up from that at least

    2. It has always amazed me that Ford & GM can take $200,000 worth of parts, build a car, and sell it for $30,000. /s

      How can any of these authors claim to know — to the penny — what Apple pays for various chips? They’re just guessing.

      It could very easily be the case of the “Chicken for sale” situation.
      A lady goes into the butcher’s and asks for two chickens. The butcher says, “That will be $1.00 a pound.” To which the lady gets angry and says, “Why so much? The butcher down the street has them on sale for $0.75 a pound.” Hearing that the butcher says, “Then why don’t you go down the street to the other butcher!” “Because he’s out of chicken,” replies the lady. Finally, incensed, the butcher retorts, “When I don’t have any chicken I sell them for $0.10 a pound!”

      So if the major players have locked up virtually all the supply of certain chips (a common occurrence during the first few months of a major production run of things like the iPhones or Galaxies — and for which the phone builders typically pay a premium for priority deliveries), then any quote by a vendor to an analyst or reporter must be taken with the biggest grain of salt imaginable. And, those that think they can accurately extrapolate from the “in units of 1,000) numbers commonly quoted to the public are just plain delusional.

    3. Labor is a small percentage of the cost here, as in most industries. Improving conditions/pay/benefits for workers is the moral thing to do, increase overall cost very little, and results in things like more people who can then afford to BUY products. Companies are admittedly hurting themselves by underpaying their workers, since that hurts the market of people who can buy their goods. The problem is being the first-mover to increase wages. That’s why regulations and unions are a good idea: they level the playing field so that companies can’t succumb to the race to the bottom where the entire economy collapses.

      1. Krioni, the answer to your post is free will. The business should have the right to pay what it wants and the employee has the choice to work where they want. No one is entitled to a job nor should anyone ever be force to work against there will. Short of prison labor, China’s population has seen a remarkable improvement in their living conditions since the country opened its borders in 1972. From mass starvation to near universal auto ownership in 45 years. Look at North and South Korea – one chose exploitative free will in 1950, the other socialism. How has that worked out? Bottom line, free enterprise is cold and uncaring, however, as a form of the ‘hidden hand’ it never violates an individual’s free will. Therefore it is moral. Socialism on the other hand….

        1. Funny how you praise modern China’s progress without mentioning that it’s also socialist.

          Socialism and capitalism can coexist to varying degrees of success, as China clearly demonstrates.

          1. Firstly, I didn’t praise China – it has huge problems caused by government melding – ever hear of ‘ghost cities?’ In fact China’s current ‘ism’ is closer to Fascism than communism. The government controls or manages big business and allows small business to operate in a relatively free environment. That said I could also argue our current governmental system is also quite Fascist. The ‘liberalization’ of China’s economy began after Nixon’s historic 1972 visit and excelerated in the 1980’s. What you can’t argue against is how much the lives of the typical person has improved since the advent of China’s economic liberalization or partial move to unfettered free markets at the lower end of society. What is laughable about your comment is the inability to define socialism – do you Communism (Union of Soviet Socialist Republics), National Socailism (NaZi – the National Socailist Workers Party of Germany, Ba’athist Party and Peronism) or the Progressive Socailism of modern Europe and North America. All things work in degrees and favors. Please define your terms.

            1. “What is laughable about your comment is the inability to define socialism”

              Actually, the onus was on *you* to define it, since you’re the one that used it in absolute terms (“… it is moral. Socialism on the other hand…”) in a way that covers all the examples you later gave

              Since you didn’t define it, it was as useless as if I had said or implied that “capitalism” is absolutely unethical and exploitive. I at least made them meet halfway to imply that both are on a spectrum.

        2. It’s pretty laughable that you think capitalism “never violates an individual’s free will.” Capitalism requires all kinds of government enforcement and restriction of people’s free will to exist. It sounds like you’d actually be in favor of anarchism, if you were intellectually honest. Not that I’m saying there’s anything wrong with anarchism. If your ideal of morality is maximum realization of free will of individuals, then you should probably look at what inconsistent positions you hold.

          1. And it sounds like you put your faith in government and not individuals. You state I sound like an anarchist. If you call Thomas Jefferson, Milton Friedman, Thomas Payne, Fredrick Hyeck and Fredrick Bastiat as anarchist, then I guess so.actually all of these folks believed strongly in the enforcement of the law – but they all tried to define what just laws are. If you are up to the effort, you should read F. Bastiats 1850 pamphlet “The Law” if you want to engage In reasonable debate. As for our current form of economic structure is closest to the National Socailist doctrine of government control of large business. As to your comment about “Capitalism.” This term was coined my Karl Marx and therefore is a communist construct which carries a lot of baggage. I used terms like Free Enterprise, Free Will, and management by the ‘hidden hand’.’ Jefferson, Payne, Friedman and Hyeck all talk about the threat of government picking favorite businesses to support or placing their thumbs on the scales to tilt the outcomes towards ‘desired’ results. None of here activities fall under the guise of free enterprise and free will. Also, have you lived in a Ba’athist, openly socialist or communist state? I’ve experienced each of these forms of government first hand – they all really suck. Since you name call, I guess you are voting for Bernie and his 92% marginal tax rate!

            1. I don’t put my faith in government – I distrust it quite a bit. Note the part where I was somewhat sympathetic to an anarchist philosophy. But, I temper pure individualism with something that is more human: the idea that we should care for others.

              I think you get this wrong: “our current form of economic structure is closest to the National Socialist doctrine of government control of large business.” I think it would be more accurate to call the current U.S. system “corporatist” – it is much more accurate to say that corporations largely control the U.S. government than the other way around.

              “Since you name call, I guess you are voting for Bernie and his 92% marginal tax rate!”
              I’m not sure what you’re saying in this sentence. I don’t believe I called you names. If I did, I’m not sure how that makes me a Bernie Sanders supporter. I would be in favor of a very high top marginal tax rate (while having a very low or even negative lowest marginal tax rate, aka universal basic income), as it would encourage those with massive amounts of income to deploy it, rather than hoard it, among other positive effects.

  2. “Without the storage markups, the iPhone would cost more overall and Apple’s R&D wouldn’t have the carte blanche we want them to have in order to continue pushing the envelope.”

    I’d more more inclined to believe this if Apple weren’t sitting on billions of dollars that could be used for more R&D, acquisitions, and negotiations with other content/service/media providers. As it is, Apple’s R&D has always been a relatively small amount of their profits.

    If the 128 GB iPhone is subsidizing anything, it’s subsidizing dividends and share buybacks and boosting the stock values. As a shareholder, I’m certainly not complaining about this, but I’m not going to deceive myself into thinking that this is done purely as a form of goodwill to lesser privileged consumers.

    1. Agreed, MDN take is nonsense. 64 and 128 GB iPhone users aren’t subsidizing anything substantial; as jacadian alluded to, 64 and especially 128 GB iPhones ship far fewer units than 16 GB ones. The additional *revenue* (not necessarily profit) from these was estimated to be $3 billion a year… but why is that analyst any more credible than other Apple “analysts”?

      Like a Windows or Android user, MDN knows the value isn’t really there, even if they can easily afford it, but are doing mental gymnastics to justify their buying decision.

      Let’s not forget the many iPhones and devices that Apple GIVES to already-rich celebrities. The “ransom note” by MLB players for something like iPhones, iPads, Apple watches Macbook Airs as the most recent high-profile example. Marketing stunt and advertising, sure, but irrelevant; if anyone wants to talk about “subsidies”, start with that.

  3. There is no sin in profit, and the market decides what is an acceptable margin.

    Just because Apple enjoys bulk pricing on individual components does not mean that we do. Even if we could get the same component pricing, what about assembly, OS, etc… We pay for the whole package, and there is nothing wrong with ANY company making a profit on their product. The more exclusive the product is, the bigger the profit the market will allow. This isn’t a story.

  4. So? I didn’t buy the iPhone by a “bang-for-the-buck” analysis. I did it because it is the best phone for my purposes. I didn’t buy the $128 to get the best deal on a single component – I did it because I wanted 128 GB. There is a cost associated with not getting the hardware you want or need. That was far more (based on my experience dealing with only 64 GB) than the difference in the cost was small compared to the annoyance of not having it.

  5. How does someone from CNNMoney NOT understand the simple concept of an open market, and supply and demand? Sure, I’d like to pay less for an 128GB, but then I’d be stuck with a Xiaomi or something like that.

    1. Or the fact that after Apple buys it, installs in, ships it, stores it, retails it AND warranties for a year along with customer service for a few months, they might need that markup.

      (Also, their investors want to get rich, too…..)

  6. The four times multiplier is a standard cost/price markup in consumer electronics and many other businesses. Its a rule of thumb that helps businesses make sure that they are covering product costs and operating expenses. Sometimes its a little less (3 to 4 times cost) but its important that businesses cover their costs and expenses and make a profit so that they can continue to invest in research and make new great products. Those companies that sell products for less are unsustainable and, more importantly, of little long-term value to consumers. There is nothing nefarious going on here.

  7. If it costs Apple $53 for the parts, how much more should Apple charge the consumer? The answer: whatever the market will bear.

    It’s a rip-off if you think you paid too much. And if that’s the case, it’s your own fault.

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