Why the entry-level iPhone 6 has just 16GB of storage

The eagerly awaited iPhone 6 announced last week offers a larger screen, more processing power and -- in the base model -- the same 16GB of storage as the two-year-old  iPhone 5.

While this year's preorders are in and the most popular models are out (of stock, that is), even the Mac faithful were left wondering why 16GB is Apple's de facto standard for entry-level  smartphones.

In 2012, the 16GB version of the iPhone 5 sold for $199 with a standard 2-year contract with a wireless provider. The base model of the new iPhone 6 also sells for $199 with a contract. So what gives?

It's not like Apple thinks its customers don't care about more onboard storage capacity. The company also eliminated the 32GB model, which was available in the iPhone 5, and doubled the capacity of the mid-range iPhone 6 to 64GB. That version sells for $299 with a contract, and the top-end model, with 128GB, sells for $399.

So someone at Apple recognized more is better. But that doesn't explain why Apple stuck with 16GB for the cheapest iPhone 6. (Apple did not reply to a request for comment by Computerworld.)

The iPhone 5 used 128Gbit NAND flash chips from Hynix. Presumably, the iPhone 6 will use similar memory from Hynix or Samsung. Either way, in 2012, the price of 16GB of NAND flash memory was $7.20. Today, it has fallen to $4.70, according to FlashBay. That's more than a 30% drop in NAND flash pricing since the iPhone 5 was launched, a price drop not reflected in additional capacity in the iPhone 6.

"Obviously, the difference between 16GB and 64GB of flash memory storage doesn't equate to $100, nor does 64GB to 128GB," said Ramon Llamas, a research manager with IDC.

NAND flash pricing doesn't take into account the cost of a NAND flash controller chip, which runs from $20 to $25, according to research firm IHS Technology.

But, Apple's decision to leave the iPhone 6's base memory capacity stagnant comes at a time when NAND flash capacity is exploding and prices are still dropping.

This year, the growth in production of NAND Flash will reach 36% followed by 35% growth in 2015 as more diversified products implement the technology, according to Sean Yang, assistant vice president of market analysis firm DRAMeXchange.

"As tablets and smartphones are entering their mature periods and shipments will slow down, [solid-state drive] applications will help spur demand," DRAMeXchange wrote in a recent analysis.

Fang Zhang, a memory and storage analyst with IHS Technology, believes Apple's strategy with the base model of the iPhone 6 is to push people to use the company's  iCloud  service when they need greater capacity.

"Using just 16GB of onboard capacity also allows Apple to add in other features while keeping the entry-level price of the iPhone 6 low," Zhang wrote in an email reply to Computerworld. "They need to control how much storage is in the whole bill of material to achieve certain gross margins and operating costs.

"That is their sweet spot price," Zhang added.

Like the iPhone 6, when Samsung's Galaxy S5 smartphone was launched in June, it also stuck with 16GB of memory on the base model. Of course, the S5 (and the S4 before it) has a microSD slot for up to 64GB of additional storage.

By comparison, the entry-level HTC One (M8) model Windows smartphone has a meager 8GB of onboard capacity. But that phone retails for either $99 or $150 depending on the wireless provider, and it also offers 65GB of Google Drive storage free of charge.

Llamas said the 16GB is "generally very usable for a majority of smartphone buyers." The 16GB models of the iPhone 5 were the by far the biggest sellers, and Llamas, who  expects the same to be true with the iPhone 6 and its bigger-screened brother, the iPhone 6 Plus. Both models go on sale tomorrow.

By sticking with a 16GB base model, Apple was able to offer additional features, such as NFC communications and fingerprint detection, "not exactly cheap," Llamas said.

Llamas said given the choice between the larger screen of an iPhone 6 Plus or a 64GB iPhone 6, most will choose the larger screen.

"If a user wanted to bump up to a 64GB iPhone 6, they could spend $749 [unsubsidized by wireless provider], or they can get an iPhone 6 Plus with 16GB memory and 5.5-in screen," he said. "The prices are the same. But take a look at tradeoffs.

"I'd bet the iPhone 6 Plus with 16GB will also be the most popular," Llamas said.