Why smartphones are getting so expensive?
The price of phones is going up fast. But how can Apple get away charging nearly $1,500 for a top-spec iPhone or Samsung it’s $1,600 for an S20 Ultra? Why Oneplus, a company that has built their entire reputation on creating affordable flagships there latest phone reach a thousand dollars.
There are seven key reasons why phones are getting so expensive that I just don’t think a lot of people are acknowledging. In this first we will try to talk about the first four keys:
1 — Qualcomm:
Qualcomm is the manufacturer who makes the Snapdragon chipsets that power pretty much every high-end Android phone and while they make amazing hardware. They also cause a bit of a cost problem. See they have no competition. If a company like Oneplus wants to have the best performance then they’ve got no option but to use whatever Qualcomm’s latest Snapdragon chipset which is in this case the 865.
And then because Qualcomm has got all this power this year. They’ve told companies if you want to have our chip then you’ve also got to buy our expensive 5g modem to go alongside it. So whether or not a smartphone maker wants 5g they’re paying for it and it gets worse because as well as the chip and the modem Qualcomm will also give you a set of guidelines. The big one being that your phone needs to have a large amount of space inside it so if you’re wondering why smartphones especially this year are leaping up in size this might well be part of the reason. Because you’ve got to remember a company can’t just make their phone taller and keep everything else the same. They’ve then got to make the screen bigger so people don’t complain about a massive board around the sides. They’ve got to have a bigger battery to power this display as well as the more power-hungry Snapdragon chip and then add to all of that. If the company wants to take advantage of that 5g modem they paid for.
Then they’ve got to buy additional radio frequency modules and put them all around the phone this costs money so if you’re wondering why Oneplus a suddenly hiked up the prices for their latest phones. I would guess that at least a part of that is Qualcomm steering them in that direction.
2 — Smartphones are getting better:
Smartphones are getting better and that it sounds like common sense they’re not getting worse. But I feel like when a lot of people complain about the prices of these phones they’re missing this point. See technology is to improve everything so it’s true if every year Samsung just released the same phone. But with slightly more up-to-date technologies each time we probably should expect prices to stay fairly constant. But that’s not what’s happening. It’s not just a case that each year we see a slight internal speck bump to keep up with the times. If it was our smartphones would still look like this every year we get designs that push boundaries furthermore intelligent cameras more advanced materials and naturally that’s got to cost more. Not to mention that phones now have like three times the screen area of when they started so as well as all that new tech. Everything else has to be scaled up accordingly and remember whilst it is getting more expensive to buy the highest-end phone each year. It’s getting cheaper to buy a good smartphone each year. There’s probably a no better example of my point than this in the US the average price of a smartphone has fallen every year continuously since 2011. Because phones are getting so much better that people no longer need to buy the highest. And so every year they can get away with spending less and less. Because the highest-end phones are the ones people talk about and the ones that grab. The headlines it creates this kind of distorted view that all phones are more expensive when all that’s happening in the high end is becoming higher. But now that’s out the way why are these top-end phones just so expensive.
3 — Saling costs:
One important thing is selling costs. The actual process of selling a phone can cost companies a ton of money which also has to get added to the price. Let’s take the absolute top-end iPhone 11 Pro max.
you can get this for around thirteen hundred and eighty dollars in Mexico. But here in the UK, you’ll pay the equivalent of 1880. There’s an element of currency conversions in those differences. But it’s mostly two things sales taxes: in most countries whenever a product is sold the government takes a cut in the U.S. It’s pretty low most states that are around 7% but in the UK it’s 20. And there are operational costs the costs of running a store the costs of hiring employees this varies massively based on the country. These selling costs are a big part of why in the UK there is a terrible deal compared to for example people in India like for example the top-end Oneplus 8 Pro is the equivalent of $1120 in the UK and India $785.
It also helps in this case that India is where a lot of Oneplus firms are put together. But hopefully, you’re starting to see just how much of a difference these selling costs alone can make to a firm’s price.
4 — Production Chains
There’s more because every aspect of the chain of production of a smartphone is expensive and it’s getting more expensive. As an example take a look at the Samsung Galaxy S20. The phone is priced at 800 pounds in the UK. But its bill of components will be around 340 pounds based on past years. So it would be easy to look at this and think something is making formed 60 pounds of profit per phone which would be great. But also wrong for starters after you take out the sales tax which is included in that 800-pound price something is only actually talking about 640. But still, a fair bit of money to remember that component cost is only one of many costs. You got manufacturing, the machines, the factories, the production lines they all have to be rented or bought. You’ve got the employees everyone from the people that put the phones together, to the people who solve your problems over the phone have you tried turning it off and on again Plus as chipsets become more and more sophisticated. The failure rate is higher as things stand with the current chips based on a seven-nanometer fabrication process about 30% and fail they just have to be chucked or maybe potentially recycled research and development you’ve got to remember that for every beautiful finish you see on a retail phone company tried 15 ones that they eventually scrapped for every successful feature like 100 times zoom on the s20 ultra there have been five or six ones that never saw the light of day.
Advertising:
And advertising costs I’ve seen this one first happened I’m not allowed to tell you which brand it was for. But last year I was on set for a commercial for a smartphone launch. And it was crazy the company had rented out an entire warehouse they’ve got a Hollywood film production crew. They’ve got like a hundred actors and extras on that set and yet after it was all done and edited they just canceled the project. Because it no longer fits the message they wanted to send for their phone.
Retailers :
Plus the retailers who then end up selling you the Samsung phones like Amazon like t-mobile. They’re going to want to take their own five to ten percent cut on top of that. So after all these costs, Samsung doesn’t make 150% profit like it initially seems not even 50. If I had to guess I would say 10% per phone on average they’ll make more money on their top-end phones like the higher storage options and the s20 ultra. But this figure gives you an idea apart from Apple who benefits from having full control over every part of what goes into their phones. Most smartphone makers have seen profits falling not rising. But there is still profit and when you take a step back considering the volumes of phones these companies sell it’s a lot of money. And while so far I’ve told you some legitimate reasons why prices should be rising there is also an element of craftiness from the end of the companies something that.
Don’t miss part 2.
