Basically, that means Apple requires a hundred million components to produce what the iPhone market needs. Every year. Jason Snell walks through the problem with a marvelous explanation of poor, sad Apple and its problem with scale. It’s just not quite as bad as it looks.
Success Breeds Problems
There is not one smartphone manufacturer that would not like to have Apple’s iPhone problems. The company’s flagship product sells more than 200-million units each year and sucks up most of the industry’s profits thanks to a hefty price tag and enviable gross margins. But that success has a problem.
Apple buys components from other tech manufacturers– displays, CPUs, SSD storage, camera, various sensors, and more. And Apple needs a few hundred million of such components– parts– each year. And not every manufacturer can produce that amount.
Apple may be the victim of its own success. The iPhone is so popular a product that Apple can’t include any technology or source any part if it can’t be made more than 200 million times a year. If the supplier of a cutting-edge part Apple wants can only provide the company with 50 million per year, it simply can’t be used in the iPhone. Apple sells too many, too fast.
This explains why Samsung can produce Galaxy-class smartphones with more cutting edge components. The highly touted edge-to-edge OLED display is a good example. Samsung’s Galaxy models sell perhaps one third of what Apple’s iPhone sells. Apple needs more parts than the industry can supply.
This is where each new iPhone model has an impact upon Apple, competitors, component suppliers, and customers, and also explains why Apple’s iPhone line runs backwards.
The iPhone is so popular a product that Apple can’t include any technology or source any part if it can’t be made more than 200 million times a year.
The numbers are wrong. Apple’s current iPhone line is as follows, and each model has slightly different component requirements which slices and dices the 200-million number.
- iPhone 7 Plus
- iPhone 7
- iPhone 6s Plus
- iPhone 6s
- iPhone SE
That’s five very distinct models, each with slightly different components; screen size, camera, SSD storage, and more. The iPhone 7 Plus has a camera not found in the other models, so Apple does not need 200-million of those cameras because that model iPhone 7 Plus may be only 15-percent of the total; perhaps 30 to 40-million units.
The same holds true with every component. Apple does not require 200-million or 300-million of any component because no single iPhone model has more than 30 to 40-percent of the total number of iPhones sold each year.
Statista has a wonderful graph of iPhone models dating from iPhone 6s back to iPhone 4s when there were fewer iPhone models in the line. What you’ll see is my argument that Apple does not require 200-million units of any iPhone component because the iPhones themselves do not have the same components.
Apple’s strategy to diminish the requirement for massive components is to move current iPhone models backwards in the line, to a lesser position, while the new models take their position at the top of the line. That means no single iPhone model has a component requirement that numbers near to more 200-million, the total number of iPhones sold in a year.
iPhone 8 Redux
There is word on the technology and market streets that Apple’s upcoming and so-called iPhone 8 has a massive component shortage problem. Maybe so, maybe not. After all, even Samsung cannot put expensive OLED displays into all its smartphones because it does not have the manufacturing capacity. This year, iPhone 8 is expected to take a massive chunk of new OLED displays but Apple will not sell 200-million devices with such a display, or the dual camera, or all the new sensors coming in the high end device.
Apple’s iPhone line should look like this for 2017:
- iPhone 8
- iPhone 7s Plus
- iPhone 7s
- iPhone SE
Whether or not the SE model gets an upgrade is a non-issue because it does not sell in the same large numbers as other models. We don’t know which modern components will arrive in the 7s or 7s Plus model, but suffice it to say neither model will have the same components as iPhone 8, the flagship bearer.
iPhone 8 will be popular, but also priced at the high end, just like iPhone 6 Plus, 7 Plus, and 7s Plus. But higher still. That helps to keep Apple’s requirements for components more manageable. Yes, Apple’s scale causes supply constraint at times, but few of the major new components, and certainly none of the ones expected in iPhone 8 require more than 200-million units. Tens of millions, yes, but not a few hundred million because the components in each model are different each year.