The DAC is better placed in the headphone than the phone, because otherwise you get bad sound quality when you use high-end ($100) headphones with a low-end ($100) smartphone. I was able to clearly make out the difference compared to plugging in the same headphones into an iPhone.

Put differently, when the DAC is in the phone, you need to worry about two things in order to get good sound quality — the quality of the headphones and the quality of the phone. With a DAC in the headphone, you worry about only one.