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Apple Inc. Faces a Big 3D Touch Cost Increase for the iPhone 8

By Ashraf Eassa – May 22, 2017 at 8:45AM

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To implement 3D Touch with an OLED display, Apple's 3D Touch-specific component costs are expected to rise substantially.

According to a report from Economic Daily News, by way of DigiTimes, the 3D Touch solution that Apple (AAPL -1.96%) has implemented for the upcoming iPhone 8 will apparently be much more expensive to manufacture than the implementations found in the iPhone 6s-series and iPhone 7-series smartphones.

Apple pays only between $7 and $9 for the 3D Touch solution in today's iPhone models, which is sourced from both TPK and General Interface Solution, the report says. For the new iPhone 8, though, TPK is apparently asking between $18 and $22 for the 3D Touch components.

Apple's iPhone 7 Plus lineup in five colors -- rose gold, gold, silver, black, and jet black.

Image source: Apple.

What's driving the cost increase?

DigiTimes explains that Apple's current 3D Touch implementation "directly bonds 3D Touch sensors" to the liquid crystal displays on Apple's iPhones. For the OLED display found on the upcoming iPhone, though, the implementation is said to be much trickier, which DigiTimes says "entails bonding of a glass cover on the front and back side of an OLED panel each to reinforce the fragile OLED panel."

DigiTimes goes on to say, presumably citing the Economic Daily News report, that the "overall processing cost for OLED-based 3D Touch solution is about 50% higher than that for the LCD-based," but that TPK is asking for a substantially larger price increase from Apple than the increase of its own manufacturing costs.

This request seems to imply, then, that TPK's gross profit margin percentage on the components it provides Apple in support of the iPhone 8 will be greater than the gross profit margin percentage it sees on components destined for the iPhone 6s and iPhone 7.

"Therefore, TPK and GIS are expected to significantly benefit from Apple's orders for OLED-based 3D Touch solution," DigiTimes writes.

Innovation is expensive

Innovative new features can be expensive to implement, and Apple's transition to an OLED display on the iPhone 8 is a perfect example. Not only will Apple almost certainly face a price increase associated with transitioning from liquid crystal display panels to OLED panels, but now it appears that the cost of the 3D Touch implementation that goes with this display type change will also go up. I also doubt that the display will be the only aspect of the upcoming iPhone that'll add substantial cost relative to the iPhones currently in the marketplace.

Now, it's not reasonable for Apple to raise the price of its latest iPhone models without also offering products at more familiar and affordable price points. That's probably why Apple is said to be planning to launch three new iPhone models this year -- straightforward successors to the iPhone 7 and iPhone 7 Plus, presumably called the iPhone 7s and iPhone 7s Plus, as well as the iPhone 8.

This way, Apple still has fresh products to serve customers unwilling to pay more for the more advanced and expensive-to-build iPhone 8 while still offering cool innovations to those willing to spend more in exchange for a superior user experience.

Such a strategy is clearly more research and development-intensive, and it makes managing the supply chain more difficult. But taking this approach can help Apple boost its average selling prices as well as defend and/or grow its premium smartphone unit share. 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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