The rise in material cost of the new Samsung (SSNLF) Galaxy S8 smartphone compared to its predecessor, the S7, shows that the company is serious about staying ahead of its main competitor, Apple (AAPL - Get Report) , IHS Markit said.
The Galaxy S8 costs Samsung $301.60 in materials and $5.90 in basic manufacturing costs, which is $43.34 higher than the total cost of last year's Galaxy S7, according to research done by IHS Markit. The company also estimated that the Galaxy's subsidized price has risen to $720 for the S8 from the $650 price range of previous S series phones.
"The higher total BOM [bill of materials] costs for the Galaxy S8 seem to be part of a trend that reflects something of an arms race in features among Apple, Samsung and other phone manufacturers, as they all try to ad new and distinguishing hardware features," said Andrew Rassweiler, senior director of cost benchmarking services for IHS Markit.
What features in the new Samsung phone are responsible for the rise in costs? First, the S8 is the first smartphone capable of gigabit-LTE speeds. "Gigabit LTE is very much the marquee specification for 2017 flagship smartphones," said Wayne Lam, principal analyst of smartphone electronics at IHS Markit. Lam noted that it will be interesting to see what Apple will do with LTE speeds on its new 10th-anniversary iPhone because the company usually lags behind its competitors in that area.
Another notable feature of the S8 is it edge-to-edge "Infinity" OLED display. The screen creates as much screen real estate as possible while also providing slick new ergonomics, Lam noted.
The new iPhone is expected to feature a similar edge-to-edge OLED display. In fact, Apple is getting its panels for the device from Samsung. Earlier this month, a report showed that Apple has ordered 70 million OLED display panels from Samsung. OLED is becoming the new standard in the smartphone sector because it provides a brighter display as well as better power efficiency.
Editors' pick: Originally published April 21.
"While there are new non-hardware features in the Galaxy S8, such as a virtual assistant called Bixby, from a teardown perspective the hardware in the Galaxy S8 and that of the forthcoming new iPhone is expected to be very similar," Rassweiler noted.
The new displays are a significant deviation for Samsung and Apple from years of essentially the same design, and could prompt a lot of customers to upgrade their phones, Lam said. This could lead to a supercycle in 2017 that starts with the Galaxy S8 phone as the first device to push for people to upgrade their phones for a display that provides a more immersive experience.
Although the Galaxy S8 and the yet-to-be-released iPhone 8 are expected to have similar features, such as the full screen OLED display, facial recognition and an iris scanner, Lam said Apple will most likely not make any changes to its design based on the S8. Since the iPhone 8 is expected to be released between September and November, the design is mostly baked in. "Apple is just finalizing the design and ramping up the production line," he said. "If the S8 influences Apple, it will be apparent on next year's iPhone."
While the S8 went for sale Friday, some South Korean customers that had preordered the phone received the device earlier this week and have complained of a red hue on the display. Samsung responded by saying that a software update that would roll across all S8 and S8 Plus devices to fix this issue, without specifying when the update would come out. Lam said this wasn't a big deal for the company. "It's not unusual for new technology to have performance issues," he said. "Samsung is pushing the limits of their displays so they'll get it resolved over time."