iPhone 3G Manufacturing Cost of $100?

[MacRumors]

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

EETimes.com reports (http://www.eetimes.com/showArticle.jhtml?articleID=208403011) that technology teardown experts Portelligent (http://www.teardown.com/) have estimated that the bill of materials (BOM) cost to Apple for the iPhone 3G could be as low as $100. While merely an estimate based on assumed components used in the new model, this is significantly lower than the $170 BOM cost at launch for the original iPhone that Portelligent estimated based on their actual teardown of the phone.

Cost savings are estimated to primarily be derived from the touch screen display (decrease of $30), NAND flash memory (decrease of $30 for 8 GB model), and adoption of other components seen in the current iPod touch but not in the original iPhone.

Those changes are only slightly offset by new costs for the iPhone 3G. Carey said the additional cost of an HSDPA chip set are only about $15 plus another $5 for the GPS chip. He also noted that the $100 price increase for a model with 16 Gbytes flash adds to the profit margin because the additional memory chips probably cost Apple only about $20.

While Apple has announced a price of $199 for the iPhone 3G in the U.S., carriers are presumed to be providing Apple with subsidies of up to $200 for each iPhone, meaning that Apple's gross profit on the iPhone 3G may be significantly higher than for its predecessor. It should be noted that other expenses, including research and development, software, licensing, and marketing, are not reflected in these numbers and would reduce Apple's profit by an undetermined amount.


Article Link (http://www.macrumors.com/iphone/2008/06/16/iphone-3g-manufacturing-cost-of-100/)

[nagromme]

"It should be noted that other expenses, including research and development, software, licensing, and marketing, are not reflected in these numbers and would reduce Apple's profit by an undetermined amount."

R&D... not a small thing :o

And one more little thing not covered in that $100 estimate... manufacturing! Parts don't assemble themselves :)

Ah well.. the article says "could be," since they haven't actually taken the new iPhone apart. They've taken apart the old one. Guesswork, then--without the information that a real teardown will reveal next month.

[badcrumble]

If this is the case, there's absolutely no reason Apple shouldn't already have a $399 32GB model on the market RIGHT NOW except for the fact that they want an upgrade path for January (storage) and then again next june (camera stuff). Pathetic.

[tirerim]

If this is the case, there's absolutely no reason Apple shouldn't already have a $399 32GB model on the market RIGHT NOW except for the fact that they want an upgrade path for January (storage) and then again next june (camera stuff). Pathetic.

Well, or that they can't fit 32 GB of chips in the same size case. Not necessarily true, but at least possible.

Also, if you actually have enough money to buy a new phone every year or even six months, congratulations, but I don't imagine most people are going to be upgrading that frequently. The only reason for an "upgrade path" is if you actually expect people to be buying a new one at every iteration.

[macduke]

If this is the case, there's absolutely no reason Apple shouldn't already have a $399 32GB model on the market RIGHT NOW except for the fact that they want an upgrade path for January (storage) and then again next june (camera stuff). Pathetic.

Pathetic? Really?? Its called business.

What other phone has 16gb of memory, much less 32gb?

If Apple had given us everything we ever wanted the first time around, they wouldn't have an iPhone business anymore. That sucks, but that's life. If it bothers you that much, then wait until the 32gb version comes out. But by then people will probably be complaining about how there's just absolutely no reason why Apple shouldn't have a 64gb version on the market RIGHT NOW.

Pathetic.

[zephead]

If Apple had given us everything we ever wanted the first time around, they wouldn't have an iPhone business anymore. That sucks, but that's life.

As much as that sucks for us, you're absolutely right. If the 1st-gen iPhone had 32GB storage, 5MP camera, 3G data, video-conferencing, GPS, and even MMS, then what could they come up with on the new version?

[CrackedButter]

These tear down estimates are useless if they omit x,y,z. Why are they given coverage if they estimate things piecemeal?

[Passante]

If this is the case, there's absolutely no reason Apple shouldn't already have a $399 32GB model on the market RIGHT NOW except for the fact that they want an upgrade path for January (storage) and then again next june (camera stuff). Pathetic.

And how is Apple not meeting your assumptions about the iPhone "arousing pity, esp. through vulnerability or sadness" or " informal miserably inadequate"?:rolleyes:

[mavis]

Pathetic? Really?? Its called business.

What other phone has 16gb of memory, much less 32gb?

If Apple had given us everything we ever wanted the first time around, they wouldn't have an iPhone business anymore. That sucks, but that's life. If it bothers you that much, then wait until the 32gb version comes out. But by then people will probably be complaining about how there's just absolutely no reason why Apple shouldn't have a 64gb version on the market RIGHT NOW.

Pathetic.
Well said. ;)

I'm disappointed by the lack of a 32GB iPhone, but I'll pick one up as soon as they're released (assuming there are cosmetic changes as well - not a big fan of that cheap looking, scratch prone glossy plastic) ... Anyway, a 16GB iPhone 3G will certainly hold me over until then!!

[steve_hill4]

I don't get the rationale behind switching to a plastic back. If the rumours are true, and usually they aren't, Apple will transition away from plastics with the next MacBook iteration. They have already begun to do so with the iPod line and iMac.

[edesignuk]

I don't get the rationale behind switching to a plastic back.By all accounts signal strength has improved greatly.

[drchipinski]

By all accounts signal strength has improved greatly.


So have Apple's profit margins on the 2nd gen phone.

[bigmc6000]

So have Apple's profit margins on the 2nd gen phone.

Barely...

$299/$100 = 3:1
$499/$170 = 2.94:1

While the margin has gone up a little bit the actual dollars have actually gone down ($329->$199). Now if you add in that Apple might be charging AT&T $499 the numbers support the new phone by $70. However I will almost guarantee you that Apple got more than $70 back for each iPhone customer through the course of the contract.

I'd say end dollars for Apple might actually go DOWN per phone but will, because of the massive exposure level, go up in total because this baby is gonna sell like hotcakes.

Also, I don't really care about profit margin. I'd gladly pay $60 for a $20 piece of equipment but it's a bit harder to swallow when we're talking $6k for a $2k piece of equipment because, as I suspect most of you are the same, I get paid in actual currency - not profit margin :)

[jonnylink]

"It should be noted that other expenses, including research and development, software, licensing, and marketing, are not reflected in these numbers and would reduce Apple's profit by an undetermined amount."

R&D... not a small thing :o

And one more little thing not covered in that $100 estimate... manufacturing! Parts don't assemble themselves :)


And don't forget packaging and shipping. So, my guess is their guess is wrong by a significant factor. I can't say I'm even close to an expert, but when you add all those extras in each phone has to cost a good deal (though probably not a great deal) more than $100. I wouldn't be surprised if the number doubled though. $200 seems like a reasonable figure. My guess might suck, but it is a good as theirs. Both as based on things pulled out of the air.;)

[mkrishnan]

R&D... not a small thing :o

And one more little thing not covered in that $100 estimate... manufacturing! Parts don't assemble themselves :)

This is true, but the BOM cost estimate is being compared to the BOM cost estimate for the iPhone 2G.

I don't see why assembly costs should be substantially higher for the new iPhone. In fact, I'd suspect they'd be lower due to continuous process improvement.

As for the R&D also, again, with Apple having already developed multi-touch, the hard touchscreen, the operating system, etc, etc, etc, with the first iPhone, I would guess that perhaps slightly less R&D cost is amortized against the new iPhone....

In other words, I think it's a reasonably direct comparison, and it should be reasonably useful in inferring that it costs Apple significantly less to make the new iPhone than it did the old one at launch.

[mavis]

So have Apple's profit margins on the 2nd gen phone.Yeah, killer move on Apple's part - the whole iPhone thing has played out so well for them. Now they're in a position to make huge profits on hardware sales of iPhone 3G (aren't they forecasting like 25 million iPhones will be sold in the next twelve months?) which is actually just a vehicle for even more, recurring profit: the App Store and MobileMe. Smart. :apple:

[javaGuru]

What concerns me is the cheaper display screen. I love the quality of the current glass screen. I hope that quality hasn't been compromised in order to make this phone cheaper.

[bigmc6000]

What concerns me is the cheaper display screen. I love the quality of the current glass screen. I hope that quality hasn't been compromised in order to make this phone cheaper.

I believe they are just saying that due to the fact that it's a year old tech and the economy of scale factor it's cheaper for Apple. I do believe SJ said it was exactly the same as before.

I just want to get one of those thin plastic covers for the back of the new one as I know it's going to scratch like all h#ll :(

[bmms8]

$100 on the price of parts might seem small but that is still high for them. whether the phone is subsidized or not, $100 is 25% of $400 which seems like an average cost of product for a company. i would also think R&D and other expenses run higher for apple then most other companies. remember they will make a lot from the appstore, even if a lot of applications are for free.

[Crocodile]

Does anyone have any idea whether using plastic instead of aluminum also reduces the manufacturing cost? I imagine it does, but just wanted to understand whether cost or the need to ensure better signal reception was the main reason behind the switch. Thanks in anticipation.

[skeep5]

Pathetic? Really?? Its called business.

What other phone has 16gb of memory, much less 32gb?

If Apple had given us everything we ever wanted the first time around, they wouldn't have an iPhone business anymore. That sucks, but that's life. If it bothers you that much, then wait until the 32gb version comes out. But by then people will probably be complaining about how there's just absolutely no reason why Apple shouldn't have a 64gb version on the market RIGHT NOW.

Pathetic.

You tell em!

[Sun Baked]

Pathetic? Really?? Its called business.

What other phone has 16gb of memory, much less 32gb?

Yep, why do people only harp on one point in the chain and say aha, they're cheating me.

Funny, I walked into a restaurant and proved their cost of components for the meal were only $14 so why were they charging me $95 for the meal.

Cost of components can at times be less than store overhead, labor, insurance, shipping, start-up cost recovery, etc.

[Saladinos]

There are loads of overheads - like staff at the Apple Stores, the stores themselves, packaging and logistics (not a small figure if they're made in China). And then they need to pay for advertising. It all adds up. It's typical business expenses, and large profit margins are also fairly typical.

Still, it looks like they've turned that 'low volume, high margin' ideology in to a 'high volume, high margin' philosophy. Good news for shareholders.

[mister-ryanhead]

While the margin has gone up a little bit the actual dollars have actually gone down ($329->$199). Now if you add in that Apple might be charging AT&T $499 the numbers support the new phone by $70. However I will almost guarantee you that Apple got more than $70 back for each iPhone customer through the course of the contract.

I'd say end dollars for Apple might actually go DOWN per phone but will, because of the massive exposure level, go up in total because this baby is gonna sell like hotcakes.)

This is an excellent point. Apple definitely seems to be going for volume with this second iteration of iPhone.

Apple is very smart in pricing iPhone 3G in this way. Even though the up-front cost for a consumer is $200 less this time around, they are actually going to end up paying more over the course of their 2 year contract with 3G (since there is a $10 increase per month in data fees = $240 over two years).

So in reality the average iPhone 3G purchaser will pay more over the course of their contract than initial adopters! (Of course, for that additional $40 they are getting 3G, GPS, etc....) ;-)

[bmms8]

This is an excellent point. Apple definitely seems to be going for volume with this second iteration of iPhone.

Apple is very smart in pricing iPhone 3G in this way. Even though the up-front cost for a consumer is $200 less this time around, they are actually going to end up paying more over the course of their 2 year contract with 3G (since there is a $10 increase per month in data fees = $240 over two years).

So in reality the average iPhone 3G purchaser will pay more over the course of their contract than initial adopters! (Of course, for that additional $40 they are getting 3G, GPS, etc....) ;-)

i don't think its for certain yet, but the $200 price tag is the subsidized price, meaning that apple will still get their $399 and $499 profit, but ATT is eating $200 of it, so the $10 extra per month goes to ATT, not apple. but, i really think apple will make a bundle off the app store.

[Anuba]

What other phone has 16gb of memory, much less 32gb?
That's a good point. I think Apple users are a bit spoiled and somehow assume that iPod storage capacity is the norm.

Take the SonyEricsson X1 ("Xperia"), one of the supposed iPhone killers coming out this year. The specs are quite impressive; 800x480 touchscreen (iPhone=480x320), 3.2 Mpixel camera with flash and 30 fps video recording, quadband GSM and tripleband HSDPA, full QWERTY slide-out keyboard, front-facing videocall cam, 830 hours standby time... and...

(drumroll)

...400 MB storage. The iPhone 16 GB has 40 times more.

So it's on par with or outspecs the iPhone in every way, and SonyEricsson considers 400 MB the appropriate storage capacity to match those specs.

One blogger referred to this as "whopping": "...Simply put, you need a very huge storage capacity for your mobile phone, and fortunately Xperia X1 has it. It has a whopping 400MB internal memory, more than enough to store video games, songs, and even short movies." :D

[ChrisA]

I don't get the rationale behind switching to a plastic back.

Likely has to do with adding GPS and the fact that microwaves don't go through metal. The case has to be transparent to the signal in all orientations including laying face down on the car seat.

[Gravity]

As much as that sucks for us, you're absolutely right. If the 1st-gen iPhone had 32GB storage, 5MP camera, 3G data, video-conferencing, GPS, and even MMS, then what could they come up with on the new version?

I really don't think Apple was withholding features with the first iPhone... and even if they did include all of that the first time around... there's always faster processors, greater memory and smaller form factors (except for screen space) as the technologies improve. And who knows what other must-have apps they could come up with that would require newer architecture?

Erik

[Anuba]

Likely has to do with adding GPS and the fact that microwaves don't go through metal. The case has to be transparent to the signal in all orientations including laying face down on the car seat.
Oh, I dunno... my Navigon 8110 has a stainless steel front and the chassis must be all metal, it weighs tons. More likely it's 3G reception and battery life they want to improve. 3G cells are quite far apart in many countries and in order to squeeze out those 7.2 MB/s you need a strong signal and a clear path... I'll be interested to see the SAR value on this one, hopefully it's not like sticking your head in a microwave oven.

I really don't think Apple was withholding features with the first iPhone... and even if they did include all of that the first time around... there's always faster processors, greater memory and smaller form factors (except for screen space) as the technologies improve. And who knows what other must-have apps they could come up with that would require newer architecture?

Erik
Well, you gotta admit withholding 3G was a pretty spaced out decision when it's been the standard in many parts of the world for several years. Granted, it's an American company but they operate internationally and they must have known that their other markets worldwide would be pinching their arms in disbelief.

It's a very peculiar mix of new and old, really. The touchscreen interface, OS, software and storage capacity = 3 years ahead. 2 Mpixel cam, no front-facing cam, no flash, and up until recently no 3G = 3 years behind.

[!¡ V ¡!]

...400 MB storage. The iPhone 16 GB has 40 times more.

So it's on par with or outspecs the iPhone in every way, and SonyEricsson considers 400 MB the appropriate storage capacity to match those specs.

One blogger referred to this as "whopping": "...Simply put, you need a very huge storage capacity for your mobile phone, and fortunately Xperia X1 has it. It has a whopping 400MB internal memory, more than enough to store video games, songs, and even short movies." :D

If I am not mistaken many phones have the option to expand with miniSD anywhere from 2-8GB chips.

400 MB is the "internal" memory, similar to digital cameras with 16-64MB of internal memory and expandable up to 8GB. :)

The iPhone without a mniSD slot is locked in the memory dept. :rolleyes:

Plus, no disk mode on iPhone and iPod Touch make it seem like one critical thing is missing. When disk mode is activated, count me in for either product. :rolleyes:

[WildCowboy]

$100 on the price of parts might seem small but that is still high for them. whether the phone is subsidized or not, $100 is 25% of $400 which seems like an average cost of product for a company.

Teardowns on iPods have suggested a BOM cost of closer to 40-50% of the retail price, while Macs are generally closer to 50-70%, so assuming the $200 carrier subsidy on the iPhone 3G, the gross profit margin is much greater than on Apple's other devices.

[bmms8]

Teardowns on iPods have suggested a BOM cost of closer to 40-50% of the retail price, while Macs are generally closer to 50-70%, so assuming the $200 carrier subsidy on the iPhone 3G, the gross profit margin is much greater than on Apple's other devices.


hey thanks for the clarification, but it makes no sense how they can make any profit if any mac is 70% bom. i might be wrong, just my opinion.

[jonnylink]

hey thanks for the clarification, but it makes no sense how they can make any profit if any mac is 70% bom. i might be wrong, just my opinion.

I have to agree with you. I'd like to see a reference for the 70% number. Got a link?

I seem to remember reading 50% being par for Apple.

[WildCowboy]

Well, here's one (http://www.macnn.com/articles/06/01/19/intel.imac.teardown/) from the original Intel iMac in 2006. The low-end model had a BOM of $873 and retailed for $1299...that's 67%. Close enough? :)

[fredfnord]

> ...no front-facing cam...

Are we talking about people wanting a phone with both front-facing and rear-facing cams? Or just a front-facing cam? Because I would certainly pay less for a phone with a camera on its front than I would for one with a camera on its back.

Video-conferencing sounds about as appealing to me as boiled spinach, but I like being able to take pictures of things with my phone. Trying to take a decent picture of anything aside from myself with a front-facing camera sounds less like a useful tool and more like a somewhat inadequate form of masochism. Kind of like, I dunno, dribbling warm water on someone's arm, instead of hot wax. I.e. not at all interesting even if you are into masochism, which I'm not, in particular.

-fred

[MacBoy08]

If this is the case, there's absolutely no reason Apple shouldn't already have a $399 32GB model on the market RIGHT NOW except for the fact that they want an upgrade path for January (storage) and then again next june (camera stuff). Pathetic.

hey what color shorts am I wearing, and how many fingers am i holding up..




its pathetic to see someone who thinks they have all of the answers...just sit back and enjoy the show man, dont act like zeusius and try to wow us with your probably innacurate insider info.


thanks.