Will the iPhone 7 Impact Apple’s Gross Margins?



Bill of materials increases for iPhone 7

According to research firm IHS, it costs Apple $225 to manufacture the 32GB iPhone 7. This suggests the iPhone 7 costs $36.90 more to manufacture than the iPhone 6S.

The table above shows the bill of materials (or BoM) for the iPhone 6 Plus to be $220, compared with the retail price of $750. The BoM as a percentage of the retail price has increased from 29% for the iPhone 6 Plus and the iPhone 6S to 31% for the iPhone 6S Plus and 35% for the iPhone 7.

However, Apple has dismissed IHS’s analysis as inaccurate. Apple’s gross margins were 40.1% when the iPhone 6 was launched, and narrowed to 39.4% after the launch of the more expensive iPhone 6S.

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Apple expects gross margins to narrow

Although Apple expects nominal revenue growth in fiscal 1Q17, it expects gross margins to narrow. It expects its gross margins to be between 38% and 38.5% in fiscal 1Q17, compared with 40.1% in fiscal 1Q16. Apple has defended this decline by saying that it continues to spend on new lines of products, which typically have lower margins.

The strong dollar (UUP) has also affected its gross margins. Apple expects an impact of 60 to 70 basis points on its gross margins from currency headwinds.


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