[Chew on I.T.] What makes up smartphone prices?

It was three years ago that the psychological threshold for smartphone prices passed the $1,000 mark with the launch of Apple’s 10th anniversary iPhone X, with Samsung’s Galaxy Note 9 following the next year.

But more recently, phone manufacturers have suffered declines in demand for high-end phones costing over $1,000 as the global economy slowed. They consequently shifted their business focus to less premium or midrange phones.

This year, the market has already seen multiple midrange phones rolled out by premium phone makers like Apple, Samsung and LG.

They resemble their higher-end models while boasting the cheaper price between $300 and $600. The Samsung Galaxy A71 5G hit the market at $599.99, Galaxy A51 5G at $499.99, while Apple’s iPhone SE retailed for $399. LG also rolled out the Q51 at $260, the cheapest so far, and Q61 at $301.

They are categorized as midrange, or sometimes “budget phones.”

While the price tags fluctuate, many users are left wondering, “Should this be considered inexpensive?” or “How does such a small handset cost so much?”

If the price threshold for high-end phones has been set at $1,000, what should be the standard for “affordable” ones? Would it help users justify their handset changes?

To help answer these questions, The Korea Herald looked into the price makeups of the latest smartphone models based on data provided by market researcher IHS Markit.


Display, the face


The display is one of the most crucial components of a smartphone, along with the chipset, and it perhaps most directly determines the success of a product.

So, they, rightfully, account for a big chunk of component costs.

According to the IHS Markit data, a 6.87-inch AMOLED hole display of the latest Samsung Galaxy S20 Ultra 5G model, supplied by Samsung Display, is estimated to cost $75 per unit. The display includes an ultrasonic fingerprint sensor module, and has a refresh rate of 120 hertz.

In comparison with Samsung’s midrange model Galaxy A50 that features a 6.4-inch AMOLED display, the display of the Galaxy S20 Ultra costs three times more.

Displays are like the face of smartphones, so what makes differentiates the price between panels for premium phones and midrange phones is worthy of exploring.

According to Samsung Display, the world’s largest panel supplier for smartphones, the flexible OLED technology used for high-end smartphone panels is far different from the rigid OLED technology applied for midrange phone displays.

“The two OLED technologies are two different technologies that use different boards from the beginning,” a Samsung official explained.

While the flexible OLED panels are made of polyimides that enable the panel maker to produce thinner, lighter and transformable display panels, the rigid OLED panels are made of glass boards.

The Galaxy S20 Ultra display is on-cell touch Y-OCTA panels that has touch sensors embedded in the main OLED panel, improving the touch sensors’ performances from those added on the surface of the main panel.

“Overall, the flexible OLEDs gives phone manufactures freedom of space, or enable them to take up less space for displays, and instead utilize it for the other parts like the batteries, and of course the unit cost is higher,” the official said. 


Chipset, the brain


Chipsets, the brains of smartphones, are surprisingly, less costly than displays.

Under its multivendor strategy, Samsung uses Qualcomm’s Snapdragon and Samsung’s Exynos.

For the Galaxy S20 series, Samsung has expanded the Snapdragon volume for unclarified reasons.

The Snapdragon 865 mobile processor in the Galaxy S20 Ultra is estimated to be $54 per unit. In addition to the processor cost, the 5G device requires a separate baseband processor that supports 5G connectivity. The 5G chipset, also supplied by Qualcomm, is estimated to cost about $74.

Capabilities of the mobile processor determine the chip price.

The Snapdragon 450 processor in LG’s budget phone Q7 launched in 2018, for instance, was estimated to cost less than $8.

Compared to the 14-nanometer 450 version, the up-to-date 865 edition boasts about 20 percent faster CPU speed, higher RAM speed, six times faster downloads, more memory bandwidth and 7-nm smaller chip size.

Samsung has also used a cheaper and less smart processor, Exynos 9610 with the unit cost of $14.90, for the affordable Galaxy A50 model.

“Application processors are the most crucial component that determines the overall performance of smartphones,” said an official at a semiconductor company.

“The supply prices of mobile processors are set by how many tasks the processors can handle, how fast they can process data and how much energy they save in the processing.”


Camera, the heart


For many, the camera has become the most important aspect when choosing a smartphone. It is largely the reason smartphones have become intimately associated to their users.

The latest trend in the mobile world is to sport bigger multilens camera modules that produce picture quality as good as bulky digital single-lens reflex cameras.

So it is predictable that the larger the camera module is, the more expensive the smartphone gets.

The Galaxy S20 Ultra sports the most expensive camera modules so far, with the total cost standing at $89.17, according to the IHS data. The Samsung phone has three primary camera modules, which include the industry’s first 108-megapixel lens, as well as depth vision and secondary modules.

Apple’s iPhone 11 Pro Max, highly touted for its picture quality, features $42.40 worth of camera modules. Like the Galaxy S20 Ultra, the iPhone has three primary camera modules with 12-megapixel lenses, a secondary module and an infrared camera that enables 3D sensing.

“The camera module prices are determined by elements like image sensor, lens and actuator,” said an official at Samsung Electro-Mechanics, the major supplier for Samsung’s smartphone camera.

“The actuator in a camera module can support premium functions like autofocusing and optical image stabilization.”

The Galaxy A50 features a 25-megapixel lens as the main camera, but the module is as cheap as $19.30, because it doesn’t offer optical image stabilization. The higher pixel count does not necessarily raise the price.


Other parts and intangibles


Other than the three most prominent components, there are many more parts assembled into smartphones, including the memory, battery, power management integrated circuits, radio-frequency transceivers, audio codecs, Bluetooth and so forth.

The data showed that battery pack is a relatively cheap component, given that a 5,000-milliamp-hour battery -- the industry’s largest -- in the Galaxy S20 Ultra cost just $5.87 per unit.

But when adding up all the above-mentioned components, it falls far short of the retail price because the selling prices obviously include the costs of research and development, manufacturing, logistics, sales, marketing and other activities required for complete launch.

“There are too many factors considered for setting the retail prices, and sometimes a budget phone may not feel as affordable as it has been planned, due to prices set higher than expected due to market conditions,” said an official at a device manufacturer.

For example, LG’s Q7 launched in 2018 was $404 despite lower component costs than rival products by Samsung or Apple, because the price had to reflect the company’s production capacity and yield.

“Samsung could churn out midrange phones more easily due to their capacity for mass-market phones,” the official added.

By Song Su-hyun (song@heraldcorp.com)