Apple iPhone Component Costs

[MacRumors]

Market analyst group iSuppli put out some preliminary numbers as the component costs for the Apple iPhone. Typically, these component breakdowns are performed on a physical device, so this analysis was done with a best-guess on many of the suppliers.

According to the analysis, the manufacturing cost for each 4GB iPhone is about $230, offering Apple nearly a 50% gross margin on the iPhone. This is reportedly in line with previous Apple margins in the iMac and iPod nano, and suggests there is room for price drops in the future.

Of interest, the supplier of the 3.5" Touch screen remains a mystery, but iSuppli estimates it's cost at $33.50.

[ero87]

wow so their profit isn't even that huge! considering that "included in the price is a 2-year plan", whatever that means...

[Sdashiki]

Originally Posted by ero87

wow so their profit isn't even that huge! considering that "included in the price is a 2-year plan", whatever that means...

um, included in the price is the DISCOUNT of signing for a 2 year plan.

thats the correct wording.

you arent getting 2 years of service for $600, though it seems like thats the wording presently.

[Sean7512]

So really, Cingular is probably paying $600 and $700 for a $230 phone and a lil more for the other. Apple is gonna make tons of money on these things...At least we don't have to pay full price, as we get that 2 year contract discount

[edge540]

that really is a large profit margin. This means that even if they sold without the 2 year contract, which usually makes phones a heck of a lot cheaper to buy, they will be making a killing off of them. Maybe once we get the actual device out we will get a better estimate on the manufacturing costs. But as it stands now, they could sell an unlocked version of the phone for 300 dollars and still make like 70 dollars off of each one. Thats what im waiting for.

[chaslam]

However, one has to remember all the costs involved with the production of the phone. All the developers that made the software, all the people that have taken years to develop the phone and the designers. So actually, its probably not a high a profit margin as we think, taking off all the R&D costs.

[OhEsTen]

But, this does'nt account for their R&D. What does it cost to have a team of engineers, designers, developers, (developers, deveoplers) and lawyers running for 2.5 years.

[Digital Skunk]

Glad I am not buying one until it has the Sprint name and logo on it.

Maybe by then the phone will be replaced by one with newer features that are way beyond my comprehension. Then I can get the regular iPhone at a discount price in the Apple Store reburb bin. Not the 32GB model with brainwave recognition.

[twoodcc]

Originally Posted by OhEsTen

But, this does'nt account for their R&D. What does it cost to have a team of engineers, designers, developers, (developers, deveoplers) and lawyers running for 2.5 years.

that is a good point....but it's still pretty expensive.....

[czeluff]

thats NOT high. Yes, computers is generally an area where margin isnt very high (buy from newegg.com, theyre getting about 11% margin. i know, i worked there). 50% sounds like alot, but when u count R&D time, thats very little.

Compared to the normal iPod, the 8gb nano costs $90, and they sell it for $250. the R&D costs arent as high either. the Nanos make the most money for them in terms of percentage.

cz

[slffl]

These cost analysis' are the dumbest thing ever. Do they take into consideration R&D? Or anything else beside raw component cost? And it's not just the iPhone, these numbers are equally being pulled out of someones butt for the PS3, 360, Wii, etc. etc.

[cheunghy]

How about their effort in development? How much does it cost...?

[JoeG4]

Uhhh....

No!

When you pay $499 for the iPhone, you also commit to a 2 year contract with cingular for $XX a month. Probably something in the whereabouts of $69 per month without including taxes.

It costs Apple $230 to make the phone. Cingular will charge you $499 for that phone WITH the discount since you HAVE to sign up for 2 years of service with them (which is NOT free). They make a **** TON just like Apple so they pay Apple (thus the discount) - that discount is called a subsidy.

The subsidy on cellphone service varies with how much you commit - FWIW I think cingular recently dropped theirs significantly on $40 contracts, but I don't know about $60 ones.

Usually, part of that subsidy goes to discount the phone, and the rest goes to whoever sells it to you - that's how all those dealers in the malls work - they sign you up for a contract and get ~$250, half of that they allow for a "discount" on the phone and the other half they stick in their pocket. [well, the owner does, and then they pay their employees - it's not as lucrative as it may sound].

So there you have it.

[cr2sh]

Originally Posted by Digital Skunk

Glad I am not buying one until it has the Sprint name and logo on it.

You just better hope you don't do anything crazy.. like die.

The 3.5" touch screen most certainly costs more than $33... right? It seems like they low balled that part to make Apple seem more greedy.

[Object-X]

Whatever, when can I order one?

[ender78]

I find this number unreasonable at this point due to the fact that iSupply likely has ZERO knowledge of the product components. Until they have disassembled one, their pricing is not even worthy of being called "speculation".

[bigbossbmb]

Originally Posted by Sdashiki

um, included in the price is the DISCOUNT of signing for a 2 year plan.

I'd be interested to know what the discount is, if any.

I wouldn't be surprised if there was no discount and the 2-year agreement was just a stipulation made by cingular.

[adamberti]

Originally Posted by ender78

I find this number unreasonable at this point due to the fact that iSupply likely has ZERO knowledge of the product components. Until they have disassembled one, their pricing is not even worthy of being called "speculation".

Bingo. iSuppli? I can't see a serious market analyst group calling themselves that. And no dissasembly means they're shooting in the dark.

This sounds to me like iSuppli just wants some advertising time, which they got. How many people went out to see who iSuppli was (myself included)? They're just jumping on the Apple bandwagon.

[TheBobcat]

You would think since Apple is trying to break into this market they'd settle for a lower profit margin. If iPhone was $399/$499, I bet you'd see sales much higher than what they will be. However, Apple may also be wanting to set a tone for iPhone to be seen as a premium device through its price in addition to features. Either way, it is what it is, and these people really have no idea.

[SciTeach]

Originally Posted by edge540

that really is a large profit margin.

Not really. The average retailer will jump up the price of a product they purchased to sell 20-40%. I was actually expecting more of a profit margin.

And if you want a comparison to what a consumer pays vs. what a seller sells, look at Starbucks!!

(I know, I know....apple vs oranges.....or coffee beans )

[FattyMembrane]

1. the specs of the iphone are still unknown, so calling this bill of materials anything more than a "wild guess" is pushing it.

2. i would be surprised if apple is doing anything more than breaking even on this thing - it's been in development for 3 years. r&d is part of the cost of the phone as well. during the keynote, i was expecting at least an $800-$900 pricetag.

[BigPrince]

Originally Posted by edge540

that really is a large profit margin. This means that even if they sold without the 2 year contract, which usually makes phones a heck of a lot cheaper to buy, they will be making a killing off of them. Maybe once we get the actual device out we will get a better estimate on the manufacturing costs. But as it stands now, they could sell an unlocked version of the phone for 300 dollars and still make like 70 dollars off of each one. Thats what im waiting for.

I think your going to wait a long time.

[dashiel]

apple's language with regards to the cingular contract have so far been strange. their wording makes it seem like the contract is included in the price which i can't imagine is true, but it certainly provides an interesting opportunity for both cingular and apple.

apple has always maintained a strict pricing policy -- one it keeps them profitable, but two it's about brand perception. apple doesn't want their products to appear as cheap. i don't ever see a time when the iphone is given away for free with a 1-year contract, but i can see apple/cingular saying $599 two-year contract included. it's semantics, but i can see it happening. cingular would lose some money in the first year on a $60 plan, but they make it back in the following year.

now if they were smart cingular would do that now while they have the two-year exclusive contract. give everyone a free year of service for the price so that when year-two comes up they can't just cancel and move on if they want to use their iphone.

[NorCalLights]

Originally Posted by chaslam

However, one has to remember all the costs involved with the production of the phone. All the developers that made the software, all the people that have taken years to develop the phone and the designers. So actually, its probably not a high a profit margin as we think, taking off all the R&D costs.

Exactly. Apple likely spent millions on R&D for this product... not to mention the R&D that Cingular put towards improving their network. Add in shipping and physical plant costs, and suddenly these margins don't look so huge.

[arn]

Originally Posted by TheBobcat

You would think since Apple is trying to break into this market they'd settle for a lower profit margin. If iPhone was $399/$499, I bet you'd see sales much higher than what they will be.

This is all speculation though... you really think Apple is going to have a surplus of iPhones in the first 6 months?

If Apple is going to sell as many iPhones as they can make in the first few months, there's no reason to charge less. You're leaving money on the table. There's plenty of time to drop prices. Is Apple charging too much for iPods? The fact they sold 21 million of them last quarter indicates they are not charing too much for them.

arn