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Samsung’s Galaxy S6 Edge Margins Shouldn’t Worry Investors

Samsung's Galaxy S6 Edge (left) and Galaxy S6 (right). Source: Flickr user Karlis Dambrans

The luxury smartphone wars are starting to heat up again. Last year, Apple seemed unstoppable as the late year release of its iPhone 6 and iPhone 6 Plus sold tremendously well as luxury-Android vendor Samsung struggled with its earlier-year Galaxy S5 offering. However, Samsung's newest iterations -- the Galaxy S6 and Galaxy S6 Edge -- have sold well. According to Forbes , the higher-cost Galaxy S6 Edge has sold so briskly that even Samsung's marketing team was caught off guard with its success.

As far as value propositions go, the differences between Samsung and Apple were narrowed with this iteration. Samsung appears to have taken strong design cues from Apple with the Galaxy S6, making the differences mostly ecosystems and processing specs, with Samsung seeking to differentiate on specs with its massive octa-core processor and 3GB RAM advantage versus dual-core processor and 1GB RAM for Apple.

There's a downside for competing on specs, however, and that is cost. Recently, IHS Technology came out with their teardown of Samsung's Galaxy S6 Edge variant. And as expected, the phone costs more to build than Apple's competing iPhone 6 Plus model. However, for Samsung investors, this isn't as big of a problem as advertised.

The majority of Samsung's bloated BOM goes to ... Samsung

As an Apple-to-Apples comparison, IHS compared the Galaxy S6 Edge to the iPhone 6 Plus with both having 64GB of memory; 64GB is not the entry level memory for either unit (16GB for Apple, 32GB for Samsung), but rather the lowest memory both units have in common. The results appear unfavorable to Samsung with its Galaxy S6 Edge costing $290.45 to build; that's $50.40 more than what Apple pays to build its iPhone 6 Plus, which is $240.05. Meanwhile, the Samsung Galaxy S6 Edge retails for nearly $50 less than Apple's iPhone 6 Plus ($799.99 versus $849).

For Samsung, the top cost drivers are the curved display ($85), the processor, ($29.50), and both DRAM ($27.50) and NAND/flash ($25) memory. And unlike Apple that depends on third parties for manufacturing and supplying these items, these are all supplied by another division of the South Korean giant's sprawling conglomerate reach. In fact, these four items account for nearly 60% of Samsung's BOM, or bill of materials, meaning their cost goes right back to Samsung.

Speaking of Apple's suppliers ... guess who's an important one?

Last year brought a deescalation of the Samsung/Apple rivalry on a host of fronts. The companies agreed to drop a host of patent infringements cases after years of saber-rattling. More recently, Bloomberg ( h/t 9 to 5 Mac ) is reporting that Samsung is working even closer with Cupertino. First is the report that Samsung won the design for the next-gen Apple iPhone chip, the A9, while only taking a minority role in supplying the current A8 chip. On the heels of that report, another article from Bloomberg found that Samsung created a team of 200 employees to exclusively work on screens for Apple products.

As far as the Galaxy S6 is concerned, however, it's hard to gauge how profitable the phone is for the company without knowing its margins for the above-referenced semifinished goods it self-supplies. If you own shares in Samsung, the important part of the story is the newest iterations continue to sell better than last-year's unit and the product mix is skewing to the higher-cost version.

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The article Samsung's Galaxy S6 Edge Margins Shouldn't Worry Investors originally appeared on Fool.com.

Jamal Carnette owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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