Apple Inc. (NASDAQ:AAPL) has refused to ditch the 16GB storage in iPhones. Most of its peers have graduated to 32GB as the base storage on their smartphones. Why is Apple holding on to 16GB storage in iPhones despite the fact that many people today demand more storage?

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It turns out Apple has a rare way for profiting from keeping 16GB in its iPhone catalog. The company is aware of the growing need for storage as people increasingly use their smartphones to take photos, capture videos and store documents. But there are also those who don’t do much with their smartphones and Apple isn’t willing to sideline them. That could explain why the company has retained the 16GB storage option.

The profit strategy

It turns out that it costs Apple only $12 more to produce a 64GB iPhone model compared to a 16GB model. However, for the consumer, there is a $100 price gap between a 16GB and 64GB iPhone. Therefore, Apple makes $88 profit out of the extra $100 charged for a 64GB iPhone.

It is for this profit that Apple makes from higher storage iPhones that the company has over the years chose to stick with a blended storage option for its iPhones. The strategy has been termed as a profit machine and it appears Apple will be leveraging it for the long term.

Selling iCloud

The other reason Apple has retained the 16GB iPhone model despite the clamor for a boost in base iPhone storage is that the smaller onboard storage enables Apple to sell more iCloud services. iPhone owners who have smaller onboard storage tend to buy more cloud storage to back-up their data.

Cook dismissed iPhone breakdown

As for the profit that Apple makes off 64GB storage models compared to 16GB models, the company has long disputed the analysis of its product components. Without revealing how much profit there is for Apple in the $100 extra it charges for 64GB storage relative to 16GB, CEO Tim Cook has insisted that none of the iPhone part breakdowns has been accurate.