Stillwater News Press

Our World

September 20, 2013

Apple's hefty memory markup puts margins ahead of market share

NEW YORK — Buying memory to store more photos, videos and applications on a smartphone costs most consumers about $50. For Apple customers, it costs four times more than that.

The discrepancy is what consumers will find again in stores starting Sept. 20, when the world's most-valuable company begins selling its new iPhone 5s and 5c. While a 5s with 16 gigabytes of memory will cost $199 with a wireless contract, that jumps to $399 for 64 gigabytes of memory. The 5c also ranges in price depending on the amount of memory.

Apple is charging up to $200 for more memory in an iPhone even though the component has plummeted in cost since 2009. Flash costs about 60 cents per gigabyte today, down 71 percent from $2.10 per gigabyte four years ago, according to IHS iSuppli. The premium fee for memory illustrates how Apple is choosing to maintain its industry-leading profit margins over cheaper pricing for a broader audience — even if that means giving up market share to rivals.

"Apple has never followed the trend in passing along the savings," said Michael Yang, an analyst at IHS iSuppli, who researches the memory-chip business. "As long as Apple can make people pay, it will stay on this track."

The strategy is now under scrutiny from investors and analysts, who question why the Cupertino, Calif.-based company hasn't cut prices to make its products more affordable, especially as it grapples with slowing sales growth.

Investors have sent Apple's stock down 8 percent since the Sept. 10 event when the new iPhones were unveiled, partly over concerns about how high the company is pricing the gadgets. The lower-cost iPhone 5c is more than $700 in China without a wireless contract, which investors said may be too expensive for many customers there.

Natalie Kerris, a spokeswoman for Apple, declined to comment.

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