Here’s the bottom line if you are among those of us interested in what actually makes iPhones click from a hardware perspective: The new Apple flagship iPhone 5S features some very cutting-edge components that represent pioneering achievements for the smartphone market while maintaining a nearly identical cost compared to the iPhone 5.

The iPhone 5C is indeed an iPhone 5 for the most part, but the 5C shares the 5S’s new LTE and RF modules, which are from Qualcomm and which are quite advanced. We will note as well that Apple now uses a great deal of glue in both the 5S and 5C to hold down their batteries – making it difficult though not impossible to replace them. The iPhone 5 battery by comparison was a breeze to remove.

That’s it!

The real secret to what Apple has brought to the table with the new iPhone is all to be found in the 5S. From the advanced, ARM-based 64-bit A7 SoC (which is manufactured by Samsung – possibly because Samsung apparently has a license to ARM’s 64-bit designs), to the new M7 motion co-processor, to the new camera, to the use of new advanced DRAM, to the sapphire-covered Touch ID sensor, the 5S truly delivers on a new wave of innovation. It does not take the “packed to the gills with sensors” approach of the Samsung S4, yet Apple demonstrates that innovation isn’t about offering more – it is about offering what software SVP Craig Federighi  describes as “what’s right.”

That the 5S and the 5C share the new LTE module is in fact significant for various reasons. Aside from providing a competitive advantage against some competitors, it allows Apple to now be able to deliver into certain key markets – primarily we mean China – a single phone design. One SKU for all countries is a key Apple mantra. In the past, Apple has been quite reluctant to devise a separate iPhone to sell into and work with China’s convoluted wireless networks. The new LTE chipsets eliminate this issue entirely.

Specifically, the iPhone 5S and 5C now use Qualcomm’s WTR1605L RF Transceiver, which supports up to seven simultaneous LTE connections during operations. The original iPhone 5 utilizes the older RTR8600L RF transceiver, also from Qualcomm, which supported only five active LTE bands. The difference may seem subtle but is in fact quite significant from both a performance and global-sell perspective.

Below is the teardown view of the 5C. Note of course the colorful, plastic case, which is of course the other major change between the iPhone 5 and the 5C. When compared to the iPhone 5 teardown (or for that metter the 5S) the parts look more or less entirely the same.

Image courtesy IHS Teardown Analysis Service

The iPhone 5s -- the teardown is shown below -- has a bill of materials (BOM) of $191, according to the IHS Teardown Analysis Service that delivered the physical dissection of the device. When the typical $8 manufacturing expense is added in, the cost rises to $199. That cost compares directly to a total cost of $197 for the original iPhone 5, based on the completed IHS teardown analysis of the iPhone 5 from one year ago. This is an outstanding cost vs. enhanced performance price point that Apple has delivered on.

Image courtesy IHS Teardown Analysis Service

We do note that the teardown assessment is preliminary in nature, accounts only for hardware and manufacturing costs and does not include other expenses such as software, licensing, royalties or other expenditures. To some degree we’d need to also consider the $356 million or so that Apple shelled out for AuthenTec, whose technology drives the Touch ID sensor and fingerprint scanning capabilities.

That said the table below presents the preliminary BOM and manufacturing cost estimate from IHS, based on the physical teardown of the iPhone 5S. As we noted, the price point is quite an achievement. Note as well the all-too-usual huge markup, and the $100 increments in associated RAM-based device costs. It continues to amaze us that Apple can get away with such huge markups for adding a few dollars worth of additional RAM (a doubling in each case from 16 to 32 to 64 GB) to each model!

Chart courtesy IHS Teardown Analysis Service

When I’m Sixty-Four

At this point it is time to turn to the A7 chip – which Apple has pointedly called a “desktop grade architecture.” No one has yet referenced the Beatles old tune “When I’m Sixty-Four” in relation to the iPhone 5S but really, someone should – so we will. The reference is, in fact, appropriate not only in the obvious sense of the number 64 but as well and more importantly in the sense that the song comes from what was then a truly ground-breaking album. We view the iPhone 5S in the same way for many reasons – including our belief that the new iPhone 5S and iOS 7 64-bit developments will lead to the eventual merger of iOS and Mac OS.

IHS notes that other smartphones have included 64-bit graphics processors over the last year. However, the 5S is the first smartphone to deliver a true 64-bit applications processor, an innovation that “has major implications for the iPhone and for Apple’s other product lines,” according to Wayne Lam, senior analyst for wireless communications at IHS.

Lam goes on to say, “The move to the 64-bit apps processor is largely driven by the need for greater computational power to ensure that the smartphone’s fingerprint sensor works quickly and seamlessly. The processor also boosts the performance of the iPhone 5S’s camera, allowing 120 frame-per-second video and 10 frame-per-second photo capture. This design change will likely set the stage for 64-bit processors to be used in upcoming Apple products, including new models of the iPad, the Apple TV and even MacBook Air PCs.” We completely concur.

IHS also notes that the 64-bit processor is an Apple-designed A7 apps processor, based on a core from ARM Holdings plc. The new 64-bit processor core is called “Cyclone,” as opposed to the 32-bit version used in the iPhone 5 and 5c, known as “Swift.” Despite the well-publicized feud between the companies, Samsung is the manufacturer of Apple’s A7. This likely is because Samsung has a license to the ARM 64-bit core. The A7 used in the iPhone 5S costs $19. This is a significantly higher cost than the A6 used in the original iPhone 5 and 5C, which currently carries a cost of $13.

Apple has also included what it calls its M7 Motion Coprocessor in the iPhone 5S. This is a potentially huge thing as the M7 offloads all of the iPhone’s motion-related data gathering and processing from the A7. In turn, this both speeds up processing of motion data as well as delivers significant power savings as the A7 does not need to be used to make the calculations.

The M7 proved to be a rather difficult component to uncover on the iPhone 5S. IHS does not make note of this, but the folks at that other favorite teardown site of ours, iFixit – which provided its own typically awesome teardown (we don’t have time to review it this time around but we highly recommend scoping it out), were not immediately able to uncover it. It was finally discovered by the folks at Chipworks – it’s very interesting what Chipworks has to note about the M7.

A DRAM for a DRAM

The upgrade to 64-bit computing really requires a significant increase in internal DRAM to make the A7 a truly powerful application processor. We’re not quite there yet and Apple has certainly not delivered more DRAM. However, the IHS Teardown Analysis Service has uncovered that Apple has updated the memory of the iPhone 5S to LPDDR3, which marks the first time that IHS has identified this advanced type of DRAM in any electronic product. Apple probably used this high-speed, cutting-edge memory, as opposed to the LPDDR2 employed in the original iPhone 5 and 5C, to support the fast processing speeds of the A7.

As we noted in our article on merging iOS and Mac OS, the price of additional DRAM (even from 1 or 2 GB to at least 4 GB) comes at a significant cost in both dollars and power requirements. The cost of such performance as delivered by the iPhone 5S’s new memory also comes at a price. The 1 GB of LPDDR3 costs $11.00, up from $9.50 for the same quantity of LPDDR2 in the 5C.

Scanners and Displays

Obviously the Touch ID scanner is new and adds some cost to the 5S. The overall user-interface segment of the 5S, which includes the fingerprint scanner, costs $15. This compares to just $8 for the user interface for the 5C, which has no fingerprint scanner.

One key component of the iPhone 5S and 5C, the display and touch-screen subsystem, remain unchanged. Maintaining the same specifications and the same suppliers for the display panels as are used in the iPhone 5 holds a strong line on hardware costs for both smartphones. Japan Display, LG Display and Sharp have been the main display suppliers for the iPhone 5 for more than a year – this allows Apple to provide each of them the opportunity to enhance their manufacturing yields and efficiencies – lowering costs.

The table below provides a fairly detailed view of where most of the iPhone 5S internal parts come from and who manufactures them.

Chart courtesy IHS Teardown Analysis Service

All in all, the iPhone 5S represents real innovation – in our opinion – at many levels. It’s both a clear cut innovation winner in terms of what it delivers to the end user, and it is a clear-cut winner in terms of what it allows Apple to claim from both an operating system and hardware perspective. These two scenarios in turn create significant new business opportunities for Apple to grow its market share and to significantly grow the overall size of the iOS ecosystem – which of course includes the App Store, iTunes and iRadio and the ever-growing collection of subscribers who use the services.

By keeping the hardware price points so nicely in line we expect Apple to once again deliver great earnings numbers. Aside from the release of new iPads - likely in October 2013, once the holiday season is over the January earnings call will be the next important event in Apple’s near term history. It’s all looking pretty good to us.