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Apple iPhone Component Costs

i hate it when apple's obsessed with gross margins.


it does make them more expensive than the competition. so, it really is 250 $ and 300$ for no profit ? gotta lower that price before you attempt to sell any.

it should be, 280 for 2 GB and 350 $ for profit and including the software and operating system. after all, apple does spend money to develop the software.
 
ero87 said:
wow so their profit isn't even that huge! considering that "included in the price is a 2-year plan", whatever that means...
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No, No, No. It's the other way around. First you pay $500 for the phone then you sign a contract agreeing to pay like $50 a month for 24 months. So the total cost to own one of these for two years is $1,700. Unless you want the $100 a month plan then you pay $2,900. Owning one of these little gadgets is as expensive as buying a new Mac Pro every two years.

What you should ask is why does it cost $50 to supply 30 days of airtime? It doesn't. What you pay for with a cell contract is financing on the "free" phone
 
slffl said:
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.
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Actually they are not dumb. They focus on parts cost alone so other folks with other areas of interest and expertise can more meaningfully layer on other costs. THEN do an analysis.

Rocketman
 
Glad SOMEBODY around here has a sense of real world economics.

"really large profit margins", my butt....
 
Macrumors said:


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.
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LOL - they all but admit that they completely pulled the $230 number out of their collective a**es, given that they haven't even touched the phone let alone looked inside it, but many of the people on this board treat it as if it actually means something.

Using the same methodology I compute that the Samsung Blackjack costs $97 in components. I don't know who supplies the 2.2" non-touch screen, but I estimate it costs $14.50. Samsung is making nearly a 50% gross margin on the Blackjack, plus whatever kickbacks Cingular gives them.
 
bigbossbmb said:
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.
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Cingular did change there network for the iphone, allow free push email, usable wifi and music synching via iTunes. I think cingular is paying nothing but we'll see different pricing with different contracts, before 2008 we'll see a good price drop from cingular.
 
arn said:
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
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In fact the 50% increase in sales indicates they are slightly underpriced. Probably to put the final nail in the Zune coffin.

On the positive side the conference call indicated iPods were a major driver in margin increases. The cost of the materials experienced a decline below expectations and the price remained firm.

Rocketman
 
Macrumors said:


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.
Click to expand...

Is doesn't really matter if it only cost 10 cents to make, it matters what the market is willing to pay, which we will find out when they are finally released…
 
A 100% gross profit is not unreasonable. Compare it to unrelated industries. For example the "standard" price to build a concrete block wall (8x8x16 inch blocks) is the cost of the block times two. For another example look at one of those stainless steel commercial stoves. The retail price is maybe $2,400 and the "parts" are bulk stainless steel from the mills at about $2 a pound. Here the gross is even higher then for cell phones or concrete walls. We could talk about Men's dress shirts or basketball shoes if you really want to see large grosses.

But the thing is that the "cost of parts" leave out the cost to assemble the parts and market the product and even leaves out the $12 per square foot per month cost of the retail space.
 
ChrisA said:
No, No, No. It's the other way around. First you pay $500 for the phone then you sign a contract agreeing to pay like $50 a month for 24 months. So the total cost to own one of these for two years is $1,700. Unless you want the $100 a month plan then you pay $2,900.
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Uhm, $50 and $100 a month, are you kidding me? :confused: :confused: :confused:
Sure we have expensive contracts in Sweden too, but then you get like 3000 minutes and 3000 sms/mms included. And thats nothing for average Svensson, a normal contract cost like $10 a month, and i can even use those $10 for phonecalls...
 
I would suspect their years of R&D, plus their marketing costs, dig into that "huge" profit a bit... not to mention that "raw" parts cost excludes actually assembling the thing.
 
People are always forgetting that these are the pure costs for the BOM. You have to add labour time, shipping costs, profit of the CM, material handling cost,... and SG&A then you come to the profit. On the other hand you have R&D costs that are compared to the profit over time by calculating the so called ROI or ROIC.
 
OhEsTen said:
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.
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In some ways it does - the Mac OS X cost is factored in at $7 (= $70 million dollars of work to make it run on this new platform) and that will also be used on other devices too.

The patents (all 200 of them) probably cost Apple $20m, that's $2 per device, shrinking when Apple sells over 10m of them. Again, many of the patents will be used on other devices too.

Isn't it great how huge development costs come out to mere percentage costs in a device when you sell millions of them!
 
From here:

"The entry of innovative high-tech developer Apple into the market won't help matters, either.

While global handset sales will continue to rise - 1 billion phones are expected to be sold in 2007 -- profit margins are unlikely to follow suit. Indeed, companies such Nokia and Motorola will be hard pressed to maintain them at current levels.

Margins in Motorola's handset business, for instance, could fall to as low as 5% in the fourth quarter from 11.9% in the third quarter when the company reports results next week."

Motorola's phone margins were at 11.9% last quarter. Searching for Nokia's margins, the latest I could find was 13.2% (from Jan '06). 50% to me sounds excessively high for a phone, given profit margins are being squeezed, and the phone is also locked to a carrier for 2 years.
 
It's asinine to believe that the consumer price on ANYTHING will be just a hair above its actual manufacturing cost! Obviously, you HAVE to factor in the research & development, and the sales & marketing costs as well, besides a reasonable profit. It costs Intel ~$40 to manufacture a chip, yet they charge upwards of $600 for some of them! Why don't you complain about that? Another stupid point - it costs maybe $1.00 to manufacture an audio cd, yet we're willing to dish out $10-$20 for it! In the same vein, it might cost Microsoft $1.00 to manufacture and package an Office or Windows OS cd, yet we gladly dish-out hundreds of dollars for the same!
 
just no contract

You'd expect that with contract, the iphone would be cheaper but nooo. You HAVE to be with cingular in order to use the iphone (properly). I have no problem with the cost of the phone itself. but why make us be with cingular/make the phone locked if you're not giving a discount on the phone? It's not like without the contract the phone will decrease or increase in profit much. I still wonder why the phone is locked, with a $500-600 price tag.
 
koolcolors said:
It's asinine to believe that the consumer price on ANYTHING will be just a hair above its actual manufacturing cost!
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50% is one big, scary hair!

As Hattig points out above, the R&D costs become less relevant the more devices are sold, whereas the build costs scale with volume. Being able to spread the R&D costs out over 10m devices in the first year alone means the (fixed) R&D costs aren't likely to be a massive factor in the iPhone's price.
 
edge540 said:
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.
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i keep seeing this misconception over and over again...the 2 year contract is not two years of included service...it's two years of being legally bound to pay for service...on top of the price of the phone (think $50-70/month for an unlimited data plan, really the only worthwhile type of plan with this phone). without the 2 year contact the price goes up, not down. buying on unlocked phone costs more because the service providers (i.e. cingular) aren't guaranteed to have your business (and therefore won't subsidize the cost of the phone)...however, in return for paying more you can pop in whatever sim card you want, wherever you are in the world. i would be willing to pay a slight premium on the iphone to get it unlocked...but i'm not holding my breath on that option being offered any time soon.
 
Look like LG was planning a similar product

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Read more
 
whooleytoo said:
Margins in Motorola's handset business, for instance, could fall to as low as 5% in the fourth quarter from 11.9% in the third quarter when the company reports results next week."

Motorola's phone margins were at 11.9% last quarter. Searching for Nokia's margins, the latest I could find was 13.2% (from Jan '06). 50% to me sounds excessively high for a phone, given profit margins are being squeezed, and the phone is also locked to a carrier for 2 years.
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This because most of the market growth last year was in the countries like India and china which do not have money to spend. Motorola is trying to become a dominate player in those markets. Apple going after us rich americans.
 
hmmm, i think apple should sell it at $299/$399 or $399/$499 if it costs $230 to manufactuer. often time companies have to cut profits to develop a marketshare. look at M$, they had to make a loss for a while on their xbox to get it sold into people's homes, and look how it worked. its now a better seller than the playstation 3. i dont know if $599 for a phone with 2 years of service will fly like people on this site believe it will. most people may not feel like it's worth it to pay that for a phone that is reletively closed to any software. what about java apps for mobile phones? the iphone, as of now, cant run them. i just dont see it being a runaway success like many others do with the pricetag. just look at the PS3, sony prices it so high that people arent buying it no matter how superior it may be to nintendo and xbox360. i hope the same doesnt happen to apple.
 
AHDuke99 said:
hmmm, i think apple should sell it at $299/$399 or $399/$499 if it costs $230 to manufactuer. often time companies have to cut profits to develop a marketshare. look at M$, they had to make a loss for a while on their xbox to get it sold into people's homes, and look how it worked. its now a better seller than the playstation 3. i dont know if $599 for a phone with 2 years of service will fly like people on this site believe it will. most people may not feel like it's worth it to pay that for a phone that is reletively closed to any software. what about java apps for mobile phones? the iphone, as of now, cant run them. i just dont see it being a runaway success like many others do with the pricetag. just look at the PS3, sony prices it so high that people arent buying it no matter how superior it may be to nintendo and xbox360. i hope the same doesnt happen to apple.
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The simple solution would be for people not to buy it then. I agree that even w/ R&D, if they want in, they should chop $100 off the price tag. $200 if they're willing.

My bet is, they still aren't too sure. They are just dabbling in and seeing what the results are. As you can already tell, it seems like there's a decent enough demand for it initially... that high cost and those early adopters will be the R&D cost.

If Apple sees a positive response, they unleash iphone mini, iphone nano, and iphone shuffle (call people at random!). If not, they hang around for a little, and bail. I have a feeling they will find a way to make this work unless it goes HORRIBLY wrong.
 
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