Why are modern phones so expensive?

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We don't need any statistical analyses to tell us that average phone prices are rising again this year, as the trend is unfolding before our very own unbelieving eyes. That $999 price spot we chastised when Apple introduced the iPhone X not long ago, and thought is the user price sensitivity threshold, is long in the rearview mirror. 

What was the ceiling is now the floor, as just the cheapest member of the Galaxy S20 family is $999, and the S20 Ultra can go all the way up to $1499, for instance. Ditto for the $999 iPhone 11 Pro up to a $1449 Pro Max

Chinese phone companies, previously associated with value-for-money propositions only, are now offering more value for more money, and encroaching on the Apple or Samsung turf when it comes to pricing, too. Just consider the $999 middle Pro child of Huawei's new P40 series, or the $1200 Oppo Find X2 Pro. Heck, even OnePlus is preparing to unleash a thousand-dollar phone with the upcoming 8 series.

Phone prices are going up again, but why?

Granted, all these phones comes with the latest chipset, display and camera innovations, and one of the reasons for the ever-rising prices is the ever-rising tide of component costs as well, as per the recent interviews of two large phone makers' CEOs. 

Nobody makes do with a front and a rear camera any more, and some like the P40 Pro are now up to seven sensors in total. Add the expensive periscope zoom with folded lens optics, the high refresh rate displays, and the ultrafast charging, and phones cost way more to assemble now than they did just two years ago.

First to shed a light on the matter was Huawei's CEO Richard Yu, who we sat down for a presser with last week, and witnessed calling the $999 for the P40 Pro "competitive" pricing, citing the increase in camera part costs alone. So, how much can the camera kit be if you are buying in bulk? Well, how about more than $100, tips Mr Yu when asked by Wired how much longer will phone makers be able to innovate on the camera front:

If you don't believe Richard Yu, another CEO, Pete Lau from OnePlus, is sayihng basically the same thing in a sitdown with Business Insider, commenting on the price of the new OnePlus 8 series whose 5G models may border on a grand.

While OnePlus phone have never been camera kings, his pain is with the 5G connectivity that "poses many more technical challenges compared to 4G." You have to stuff way more antennas and filters, and deploy them strategically around the phone, especially if you want signal to pass through on Verizon's mmWave network, and the OnePlus 8 5G is rumored to land on Big Red for the first time.

Fitting all this in a phone with decent size and weight "very challenging in terms of design and configuration," according to Mr Laualso said, and he continues with the telling "prices across the supply chain, from raw materials to 5G chips, are all rising generally in the industry."

Even Apple is not immune from lower margins. Gone are the days when it made the iPhone 6 for $200 and sold it for triple that, as the camera component was just $12. Now the iPhone 11 Pro Max costs about $490 to make, and starts from $1099, with users keeping their phones for three instead of two years. The most expensive 11 Pro Max component? You guessed it, not the screen, as usually before, but the $74 triple camera kit.

When will this upward trend of high-end phone pricing and feature competition come to an end? Well, Pete Lau estimates that, after the initial brouhaha around 5G passes, and manufacturers have managed to master the multi-lens and multi-antenna designs, the costs will come down.

"The price of 4G devices went down somewhat over time … we anticipate a similar trend with 5G," Mr Lau says, and we can't wait for that moment to come, given that we are well on our way to the $1500 phone at the top end.

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