iPhone Teardown Puts Components at $220

[MacRumors]

http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

Businessweek (http://www.businessweek.com/technology/content/jul2007/tc2007072_957316.htm) reports on an iPhone tear down by Portelligent which estimates the component cost of the iPhone at $220.
Portelligent estimates that the cost of the materials used in the iPhone add up to about $200 for the 4-gigabyte version, which sells for $499 and about $220 for the 8-gigabyte version, which sells for $599. Their estimate doesn't include costs of final assembly, but it does give some insight into the gross margin on the device
It seems some guessing was still involved as the cost of the touch-screen ($60) was admittedly an "educated guess". Even the identify of the manufacturer of the screen was based on guesswork:
Carey told BusinessWeek that his analysis found no apparent markings that identified the screen's origin. But Balda's role in the screen has been something of an open secret in the wireless industry since the iPhone was first announced by Apple CEO Steve Jobs in January.
Regardless, these breakdown costs only indicate raw component costs and do not include assembly, research, development or even boxing/packaging.

[kalisphoenix]

Wow. I think in another thread people were guessing about $250. Not too shabby.

[ppc_michael]

Oh snap. This sort of profit isn't normal, is it?

[notsofatjames]

by the time you factor in productions costs, r&d costs, packaging and shipping costs, i dont think apple is make huge amounts of profits on this. Obviously a small amount, but not loads!

[gauchogolfer]

Oh snap. This sort of profit isn't normal, is it?

As mentioned, this isn't the total cost. There are still manufacturing/assembly/packaging/R&D costs to be recouped. Not to mention advertising.

[suneohair]

Apple is making at least $100 per unit. Otherwise whats the point?

[juststranded]

Honestly, the final cost isn't anywhere near $220. Like they said it doesn't include assembly, research, development, packaging, shipping, marketing, patents, costs to cut deals with carriers, the developement of the visual voicemail for EACH carrier they use on each continent and it's also the first phone Apple has ever made, things will be a lot cheaper with Rev B hardware and software. They've got everything laid out now. Small changes in the software and hardware won't cost nearly as much as the original development.

The original iPod was $500, and it too probably had a component value of ~$220.

Let's see what the Rev B iPhone and iPhone Mini cost before we start complaining about Apple's profit margin without even an educated guess as to what the entire project cost to get this thing into our hands.

[Yankees 4 Life]

Apple is making at least $100 per unit. Otherwise whats the point?

in the words of my friend steve jobs..."I'm RICH BIATCH!!! *trucker horn* HONK HONK!!

[Knox]

Apple is making at least $100 per unit. Otherwise whats the point?

The profit on the iPhone itself won't be quite as important if, as rumoured, they are taking a cut of the $60+/month contract cost. If they take 10% that would still mean almost $200 for a $80/month plan.

[Chaszmyr]

Apple is making at least $100 per unit. Otherwise whats the point?

Well it can't lose money otherwise SJ could never get the company to agree to it, but have you seen the way he talks about the iPhone? It's like his new baby, he would have done it for free.

[Rend It]

...The original iPod was $500, and it too probably had a component value of ~$220.

Let's see what the Rev B iPhone and iPhone Mini cost before we start complaining about Apple's profit margin without even an educated guess as to what the entire project cost to get this thing into our hands.

I take this news to mean that there's still room for a price drop on the Rev. A iPhone. Before long, we'll probably see the price come down by about $100 on each version (4G and 8G). Right now, Apple can get away with a large margin because there are people who will buy it regardless of price. I'd bet we'll see a price drop before the next hardware revision. There's still quite a bit of functionality that can be added through software updates.

[bilbo--baggins]

I'd say that's quite a lot for Apple to be spending on components (if it's accurate). Just think of all the money they must have spent on designing the software for it. Not that it's all about money. I mean, look at the rubbish Microsoft produces, and they've got loadsamoney.

You don't get people working out the cost of the box, DVD and leaflets that you get when you buy Adobe CS3...

[bigmc6000]

Well it can't lose money otherwise SJ could never get the company to agree to it, but have you seen the way he talks about the iPhone? It's like his new baby, he would have done it for free.

I was in my group meeting today and my lead decided to tell the whole group that a member in our group was the proud new owner of a baby - his iPhone. haha - so now I'm not going to get anything done this afternoon - people stopping by every 5 mins to check it out.

[sam10685]

Apple is making at least $100 per unit. Otherwise whats the point?

You ever heard of something called the playstation 3?

[elistan]

You ever heard of something called the playstation 3?

They make their money off of game licensing, I've read. I don't see how that applied to the iPhone?

Anyway, back to the original didcussion - in addition to the component costs, and all the other costs, don't forget licensing costs. Granted a lot of it is open source, but it wouldn't surprise me if Apple still has to pay some people to license various bits of tech used, for each iPhone sold. Have you been to the About -> Legal page? My god, it's huge! For example:

ACELT.net codec
Audible software
BLUEmagic bluetooth stack
Linotype something-or-other
Marker Felt typeface
MPEG Layer-3 from Fraunhofer IIS and THOMSON multimedia
QDesign music codec
Sorenses video codec

Granted, a lot of that text is in regards to free open source, but I bet plenty of it cost Apple some money.

[killerrobot]

As mentioned, this isn't the total cost. There are still manufacturing/assembly/packaging/R&D costs to be recouped. Not to mention advertising.

Apple spent next to nothing on advertising for this. They just mentioned it and all the fanboys did all the work.
So the left over 350 bucks/phone goes to manufacturing and R&D.
Did it cost that much to pay the sweat shop in China? Or is it all going to R&D?:rolleyes:

[elistan]

Apple spent next to nothing on advertising for this. They just mentioned it and all the fanboys did all the work.
So the left over 350 bucks/phone goes to manufacturing and R&D.
Did it cost that much to pay the sweat shop in China? Or is it all going to R&D?:rolleyes:

They had several TV ads - TV time costs money.

[killerrobot]

They had several TV ads - TV time costs money.

Apple spent $10.4 million on iPhone advertising in major media in the first three months of 2007 (http://publications.mediapost.com/index.cfm?fuseaction=Articles.showArticleHomePage&art_aid=62882)
I remember reading their total budget was 25 million. That's petty cash compared to most advertising budgets.

An article for Apple's gross margin (http://www.macnn.com/articles/07/01/18/iphone.garners.50.margin/). Seems like they're gonna have to drop the price soon.

EDIT:If you believe there was no "free" advertising for the iPhone, read this article too. (http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/06/28/IPHONE.TMP)

[kadajawi]

I wonder what profits other companies like Nokia get... especially with the Razr V3 I expect profits to be very high at launch.

And now I can also understand how Meizu can announce such low prices for their M8, they are using similar, though probably higher end components (slightly faster CPU, higher resolution, quite possibly better DAC), but they can save on the R&D costs because they use WinCE and only have to program a UI for that, and licensing fees they probably ignore, at least for their own market for which the prices were announced. That may also be an indication on how much those licensing fees cost. Still wondering if it works out for them.

[nattyD]

No surprise.

Apple always grabs as much return as they can when they release a product. After a while the price drops and the hardware gets upgraded. Thats the way Apple works. The iPhone was in development 2 1/2 almost 3 years so theres a lot of R&D costs. Advertising would be increasing revenue so they usually go all in on this.

[Yankees 4 Life]

there has been an updated figure that puts the cost of the components at $263... nice profit

[cycocelica]

http://money.cnn.com/news/newsfeeds/articles/djf500/200707030806DOWJONESDJONLINE000306_FORTUNE5.htm

[defeated]

Apple earns more than 50% on each of them sold :)
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/03/AR2007070301488.html

[brasscat]

Sounds about right. I've heard they try to maintain at least a 40% markup over costs. They probably make even more on the 8 gig iPhone (since 4 extra gigs probably costs them less than $50).

[DopestGingah]

Apple makes a lot of profit on all of their products.

[marksman]

Yeah because Apple has no overhead. No R&D budget, no store supply chain with ridiculous numbers of employees and all the rest.

That number is Gross Margin. 57% gross margin is not that high. Florists have higher gross margins than that.

[himansk]

Apple earns more than 50% on each of them sold :)
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/03/AR2007070301488.html

Relax mate, its just the cost of hardware in the iphone, it does not include R&D (which would have been huge for a Rev A), cost of software development and maintenance (eg additional software in development, etc), cost of packaging and advertising, cost of assembling the parts and transportation, costs of testing, etc. I wouldnt be surprised if they are earning only around 100$ per phone at this stage. slowly the margin they are getting should increase to a higher percentage as costs go down and the whole process becomes more efficient.

[mcarnes]

57% gross margin is not that high. Florists have higher gross margins than that.

And doctors... ;)

[JNB]

Without even looking at the link, let me guess -- iSuppli? They're notoriously inaccurate, don't account for anything that enters into real-world manufacturing & distribution costs, guess at most of what they claim are component costs (since they don't have access to the actual components), and on, and on, and on...

I work for an OEM (similar to Apple, we design and manufacture our own hardware and the software that runs on it), and our best margin, after amortizing development costs over five years, is on the order of 34%. This is for equipment that's been in production for over ten years!

Realistically, true gross margin for the iPhone is more like 17-25%, and net is a good bit tighter. I'd be surprised if the actual net is more than $75 a unit, but knowing Apple's muddying of their 10Q's and annual statements, will still be darn near impossible to discern.

It's Business Accounting 101, and either iSuppli either doesn't understand it, or ignores it intentionally (more likely, because they get quoted by national press that way.. :rolleyes: )

[vannibombonato]

Apple earns more than 50% on each of them sold :)
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/03/AR2007070301488.html

You can't be more wrong.
What that is telling you is that the cost of raw materials of the product is around 30% of final sales price.
Then you have to add manipulation, marketing expenses, salary of the people, and etc. etc. in a never-ending list.
Do you have an idea of how much does it cost to move from a 50$ chip to a super-hyped cellphone advertised on TV and sold on a huge building in NY 5th Avenue? An awful lot of money.

30% of raw materials cost is not a small number at all.

[docc]

Are you guys forgetting to factor in the cost of R&D, salaries, Marketing etc...?

[Sun Baked]

And doctors... ;)

But for doctors, medical school loans and insurance, likely take a bigger whack than Apple's R&D. :eek:

[shipdestroyer]

Are you guys forgetting to factor in the cost of R&D, salaries, Marketing etc...?

Yes.

[/dev/toaster]

Well, after all they did spend 3+ years developing it. So, of course they have an outrageous R&D bill to pay.