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The pundits will go on about last weekend's initial sales for the new iPhones 5c and 5s, but IHS has some good news for Apple (AAPL) investors.

Due to dropping component prices, the costs for the new products are less than last year. IHS, Inc. reported this morning that the new iPhone 5s costs approximately $199 to manufacture. A year ago, they reported a cost of $207 for the iPhone 5. One would have thought that the new A7 processor and the TouchID fingerprint reader would have added cost - and they did. However, reduced prices for the display, battery, and to a lesser degree, other components has kept the overall price down.

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This reverses a trend of increasing costs with new models. Last year's 5 was $11 over the previous year's 4s model.

As for the new little brother, the iPhone 5c, the cost reduction has been significant, coming in at just $173. The 5c is essentially the 5 in a plastic case, which appears to have shaved $8 off the component cast and $1 from the manufacturing cost. Even though it has an updated wireless radio assembly that supports up to 13 LTE bands, the price for the systems has gone down $2.

The following chart lists the IHS original costs estimates for the various models, along with the cost to price multiple.

(click to enlarge)

Margins

Apple's stock price has been struggling this year, dropping more than 40% at its lowest point, from last September's high of $700. It is currently struggling to break the $500 mark. The fall from grace was prompted by drastically falling gross margins -- 36.9% reported in July vs. 42.8% the previous year. On slightly higher revenue, this cut EPS to just $7.47 vs. $9.42 a year earlier.

Many feel that this is due to competition from the Android mobile operating system from Google (GOOG) and more recently from Microsoft (MSFT) whose Windows Phone 8 has been gaining some traction. This competition is driving Apple's margins down, according to some analysts.

Overall gross margins are very tricky, as they depend so much on the overall product mix. They fell dramatically last quarter because the iPad, and the iPad Mini, picked up as a proportion of sales. Both of these have lower margins than the iPhone, particularly the Mini.

But this new news indicates that the margins are being maintained in the current product line.

Note: The IHS release compares the $199 iPhone 5s price to a total cost of $197 of its predecessor "based on the final results of the IHS teardown conducted one year ago." The press release of the time, however, is as posted in the table above. It seems to me that since this is also preliminary, we should stick with the current figures. The reader should keep this in mind, although it does not violate my premise.

One analyst

Morgan Stanley analyst Katy Huberty is among several who raised estimates following the 9 million sales figure. Barron's notes:

For next year, she raises her estimates to $180.26 billion and $44 per share from a prior $172.2 billion and $41.53, on sales of 171 million iPhones, up from a prior 169 million.

Conclusion

The dissection of the new iPhones by IHS, and their cost analysis, is good news for Apple investors. Apple clearly has succeeded in keeping costs down on these products, and this will affect gross margins going forward. When we couple this with the spectacular news of the sale of 9 million new iPhones during the opening weekend, then we have a very positive picture going forward.

Source: New iPhone: Bigger Margins