Apple’s iPhone 14 Pro Max will launch in September 2022 with an expected price of $1100. Well, that’s a bit expensive, isn’t it? But have you ever wondered why modern smartphones have become so expensive?
A decade ago, smartphones did not cost an arm and a leg. However, it was also a decade ago that smartphones first crossed the $700 milestone. Since then, there has been an uptrend in smartphone prices.
But why is it so? What are the reasons behind this trend, or is it simply a case of companies overcharging? Let’s look at some major aspects of why modern smartphones are getting expensive daily.
Table of Contents
- 1. Global Chipset Shortage is Affecting the Supply Chain
- 2. The latest Smartphones are Feature-packed and Robust
- 3. The cost of Production has Sky-rocketed
- 4. Smartphone Parts Have Become Surprisingly Expensive
- 5. Sudden Inflation has Affected the Overall Prices
- 6. Sales Related Costs are Rising
- 7. People Aren’t Switching to Latest Models
- 8. Smartphones Have Become a Symbol of Luxury
- Wrap-up
1. Global Chipset Shortage is Affecting the Supply Chain
After Covid, the shortage of chipsets – also known as semiconductors – left a major dent in multiple industries worldwide. The shortage impacted both smartphone prices and computers and other electronic machinery. Even in 2022, the problem is there to stay for longer.
If you’re wondering why smartphones are getting so expensive, every gadget contains numerous delicate chips. This includes phones, cars, smartwatches, fridges, and so on.
After the pandemic, when the import bans were lifted and the production paced up, the demand for chipsets used in all devices, including smartphones and laptops, skyrocketed. The major increase in demand severely disrupted the supply chain.
As the manufacturing industries increased the raw material prices, chip companies soared the device prices. If the same situation continues, smartphone prices are going to increase further.
2. The latest Smartphones are Feature-packed and Robust
It is common knowledge that smartphones are getting more advanced every year. It is mainly because of consumers’ demands and latest trends in smartphone technology. To ensure customer satisfaction, companies have to keep up by adding enhanced features to their flagship phones.
Smartphone screens are steadily improving with modern display technology such as LTPO, high-quality multi-camera setups, more RAM, and more space, to mention a few. Such high-end features are the reason why smartphones have become so expensive.
Mobile companies can only keep up with the competition by increasing their research and development investments. That investment must eventually be recouped, and the only way to do so is to pass it on to the end-user.
3. The cost of Production has Sky-rocketed
Due to the staggering increase in components’ prices, smartphone manufacturing is getting very expensive. Afterall, that compact design to make your smartphone handy yet feature-loaded cannot be done on a shoestring. And unfortunately, this isn’t going to change very soon.
The reason that low-cost smartphones are getting people’s attention is that corporations are not being inventive in certain areas. They are reducing prices simply by reusing old designs and manufacturing techniques that have already become more efficient, resulting in cost savings.
For example, despite flagship iPhones getting so expensive, iPhone SE is still low-priced because Apple is reusing the iPhone 8 design. They have only replaced the processor and some other internal accessories.
4. Smartphone Parts Have Become Surprisingly Expensive
The price of smartphone parts – also called bills of materials – is getting shockingly high. Component Research Team of Counterpart Research declares that iPhone 12’s parts cost around $415. That’s 21% higher than the older iPhone 11. Likewise, the addition of the OLED screen resulted in a $23 increase, whereas the 5G chip added $34 extra.
The shocking part is that even the cost of Apple’s self-manufactured components soared up and added a 16.7% increase in the overall cost of an iPhone
This trend is not limited to Apple but the entire smartphone industry. Companies are unable to absorb rising component costs. Somebody must pay, and that somebody is not anyone else but you.
5. Sudden Inflation has Affected the Overall Prices
Even though the increasing power of phones may appear to justify the exorbitant prices, inflation also plays a role. Inflation is not only affecting smartphone prices but almost every product across the industries.
Every year, the US Federal government publishes yearly inflation rates, which directly quantify how the cost of items has changed over the previous year. We can notice a fair increase in apple prices amid inflation.
For example, the iPhone 6 launch price in 2014 was $649. As per US inflation Calculator, the cost of an iPhone 6 will be $793 after adjusting for the cumulative inflation of 22.1% in 2022.
As a result of rising inflation, smartphone companies must guarantee that inflation is carefully managed in order to protect their businesses from losses.
6. Sales Related Costs are Rising
Smartphones are not only expensive to manufacture but to sell as well. Similar to the iPhone 12’s example mentioned above, if the iPhone 11’s overall parts cost around $415, the company must have added the taxes, manufacturing costs, and other sales-related costs, such as advertising, shipping, and operational costs.
The final $699 retail price comes up after adding all the above-mentioned costs. The retail price also includes the profit margin of resellers like Walmart and Amazon.
This is why smartphone companies increase prices to make sure they get substantial profits by keeping all the stakeholders satisfied and happy.
7. People Aren’t Switching to Latest Models
One of the key factors of the decline in smartphone sales is that people aren’t frequently switching to newer models. Known research company Strategy Analytics reports that since 2014, smartphone upgrading cycles have increased. In 2020, users kept their phones for a record-breaking 43 months.
Companies raise prices to retain profitability and stay afloat as sales decline. According to Statista, smartphone companies’ income has largely been stable even though smartphone sales have remained on a downward trend since 2019.
Interestingly, according to a February 2022 Counterpoint Research report, smartphone revenue increased globally to a record-high of $448 billion in 2021, with Apple accounting for 44% of the $196 billion in sales.
8. Smartphones Have Become a Symbol of Luxury
There are a lot of affordable smartphone choices available if you need one. You will find plentiful low-cost secured phones with a variety of features like privacy and security. The amount you pay for a smartphone will depend on your demands. Most of the extra features offered in the latest smartphones are optional, and you can easily do without them.
Premium smartphone marketing strategies indicate that they are no longer just phones but luxury products. So, when you purchase an expensive smartphone, you are essentially paying for luxury. Genuinely, mid-range carrier unlocked smartphones offer the best value for money.
Wrap-up
Smartphones are not getting cheaper any time soon. It makes no sense to spend a fortune on a smartphone that will probably lose its charm as soon as its successor arrives on the market. On the other hand, certain features in these luxury phones are of no use to you. So, why pay extra for a feature you are not using?
Inflation is the reason why people are keeping their smartphones longer than ever. It will keep forcing the companies to increase prices to maintain revenue. Since this trend will probably stay for a while, buying a mid-range smartphone under $500 with all the necessary features is better.
