Apple Reduces Build Cost of CDMA iPhone With Design Tweaks

[cire]

Economic naivete

I am always amazed that people complain when Apple sells a product for more than it costs them to build. Those same people wouldn't pay $1000 for a iPhone if it cost Apple $1500.

Cost of an item has only two impacts on sales price: If it costs more than a company can sell if for, they will not produce anymore and secondly, if a company charges TOO much more than its cost, eventually a competitor will arise that will force the price down.

 

[appleguy123]

This is the cost of the parts only. No shipping, design, engineering, assembly and labor, etc etc etc.

Go get a repair done on your car. Part is usually a lower expense than the labor.

My car isn't repaired in a Chinese sweatshop.

 

[Pigumon]

wait apple makes the iphone 4 for $170, and sells it for $650?!!!

The estimates do not include other costs involved in product development, manufacturing, and sales, such as research and development, software, patent licenses, marketing, and distribution expenditures.

This is for EVERYONE who thinks the cost of PARTS is the ONLY cost of any product.

When is the last time you designed a smartphone? How much money did YOU spend figuring out what works and what doesn't? How much did YOU spend on prototypes that ended up not working the way you expected and so you have to REDESIGN and RE-Manufacture prototypes?

How much did you spend designing the SOFTWARE to make the phone work the way you wanted?

Once you finally got your design perfected, how much money did you spend building brand recognition for your phone? How much did you spend building an infrastructure to get apps on that phone? How much did you spend marketing & advertising your phone so that people not only knew it existed but they actually wanted to BUY it?

How about patenting your great new invention and hiring LAWYERS to protect YOU against people who want to steal your new idea?
What about the cost of the box you put your new product in? How about getting your product to the person who wants to buy it??

There are so many factors that go into creating a single product, you can NEVER assume the part cost is the only cost, let alone the highest cost.

 

[VenusianSky]

And the iPhone still retails for the same amount.

I didn't know this was going to be taken so seriously.

 

[cire]

Apple has very good gross margins, but they have to work hard to keep them that way. If they sell a phone for $650 and their gross margins are about 38% they clearly have to spend much more than $180 to get the phones into our hands. But if they had 100% margins, it would be fine with me...as long as they produce a product that is valuable to me.

 

[Thunderhawks]

I wish isuppli would just go away.

What is the point of knowing estimated material costs ?

As a user I never get to pay these and we all should be smart enough to know that material cost alone doesn't make the price.

Let me take that back, some are not smart enough from the comments in this post.

 

[Dusky600]

Very interesting. Remember all the naysayers who were DEAD CERTAIN no CDMA iPhone would ever come about because it would just be SO much more expensive for Apple to produce as one of the main reasons?

And now the truth is it's costing them less to make and will have higher profit margins than the GSM variant.

I still suspect Apple would prefer a single version and I think at some point it will be dual mode, but clearly the numbers don't lie...they aren't hurting themselves by having 2 versions.

the qualcom world chip thingy is clearly there to unify cdma and gsm capability, its the logical move on apples part to have just one production line for everyone.

 

[KALLT]

I wish isuppli would just go away.

What is the point of knowing estimated material costs ?

As a user I never get to pay these and we all should be smart enough to know that material cost alone doesn't make the price.

Let me take that back, some are not smart enough from the comments in this post.

If you're not interested, then just don't read it. Simple as that. I find this topic interesting enough.

 

[Eso]

Integrated GPS on the chip may explain some of the issues people have been having with their GPS signal not being as strong as it was on previous versions of their iPhones

Just more bad news for iPhone 5 😡

 

[E.Lizardo]

Which still makes no sense. 😀

Basic Econ 1010: you price it based on demand, not how much it costs you.

Most people on here couldn't pass econ 101 with 5 tutors and a cheat sheet.
All they know is they want everything for free and profits are evil.

 

[Tigger11]

Integrated GPS on the chip may explain some of the issues people have been having with their GPS signal not being as strong as it was on previous versions of their iPhones:

No, we might have an attennae difference between the two causing issues, and thats if we believe that there really is a difference between the two phones in GPS capability. From the story you printed we can pretty much say it isnt the chip, and likely isnt the phone at all. Its much more likely a satellite, tower or software issue.
-Tig

 

[santaliqueur]

And the iPhone still retails for the same amount.

Did you think Apple is a non-profit company? Or are you just being a prick?

 

[E.Lizardo]

Since you want to talk about basic econ, let me teach you a little something. Price is determined by both demand AND supply. When the cost of production is lowered, the entire supply curve/function/schedule (whatever you want to call it) shifts to the "right". This means that at any given selling price, Apple is willing to supply more units than before.

The result of this shift, with demand intact, is that more quantity of goods are sold and at a lower price. It seems counterintuitive and worse for the company right? No. Revenue is increased and total profit is increased, even though the profit per device may go down.

Of course this is just basic econ right? There may be other reasons Apple is keeping the price the same, such as uniformity of prices across carriers, etc etc. But the reason is not what you said it is and its not so straightforward, so try to be less arrogant about it next time.

What a crappy teacher.
Cost of production has nothing to do with supply.The price of an iPhone is exactly what Apple charges for it.Period.If it cost 1 cent to make and people deemed it worth buying at Apple's price in a quantity that Apple was happy with that would be the correct price.There is no rule(yet)that a company must sell for x dollars over cost.
While often companies can lower prices and sell more,increasing profits if done correctly,obviously Apple feels the current price is the best one at this time,given current demand.
So it is straightforward,and to see arrogance on display look in the mirror.

 

[snakelda]

The profit in the iPhone 4 is HUGE!!I knew they made profit but they still end up with profit even with people signing a 2 year contract!

 

[karohan]

What a crappy teacher.
Cost of production has nothing to do with supply.The price of an iPhone is exactly what Apple charges for it.Period.If it cost 1 cent to make and people deemed it worth buying at Apple's price in a quantity that Apple was happy with that would be the correct price.There is no rule(yet)that a company must sell for x dollars over cost.
While often companies can lower prices and sell more,increasing profits if done correctly,obviously Apple feels the current price is the best one at this time,given current demand.
So it is straightforward,and to see arrogance on display look in the mirror.

I guess you forgot the part where I said there are OTHER reasons why the iPhone is priced the way it is? I even mentioned one, but yes you are correct. A company is free to make the price whatever they choose for whatever reasons you want. But if you're talking about basic economic principles and maximizing profit, cost of production is a factor of supply. If you read carefully, and in case you don't understand, I wasn't criticizing Apple's decision not to lower the price. That's their choice and I'm content with it. I was criticizing a perpetuation of a false fact. Simply "demand" is not the only thing that determines the cost of a good.

If you want further reading, I recommend Mankiw's basic econ textbook.

Once again, to clarify, I'm not disagreeing with the sentiment that Apple has many reasons to retains its current price point. I am just trying to remove a misconception that someone arrogantly posted as true (you don't just price it based on demand, how much it costs you is a very real factor - whether it be parts, factory maintenance, labor, etc)

 

[tigress666]

No, we might have an attennae difference between the two causing issues, and thats if we believe that there really is a difference between the two phones in GPS capability. From the story you printed we can pretty much say it isnt the chip, and likely isnt the phone at all. Its much more likely a satellite, tower or software issue.
-Tig

Ok, and why do you say it is most likely not the chip or the phone from what the story printed?

I mean why wouldn't a chip or different antenna design not affect GPS and how well it works?

I just don't see the reasoning behind why it's not the chip or likely the phone (most likely cause I'm not sure what story you are referencing? are you referencing another thread?). Not saying you don't have one, but I'd like you to actually explain it.

It would be nice to see proof it's most likely something on verizon's end (cause I have AT&T) mostly cause that was one improvement I loved on my new iphone 4 over my old 3G, the GPS was very noticeably better (it was faster to get a lock and a lot more accurate. And I noticed this before I read they changed the GPS chip, I already had figured it out by difference in performance). I'd be upset if the change of GPS chip has made it go backwards cause I do foresee that is what apple will do in future iphones. Which means if I want to upgrade mine someday, it might mean I have to give up the better GPS (and that's one of the big reasons I love my phone is the GPS capability).

 

[clibinarius]

Actually, these are estimates about what it is thought to cost to build this from parts; Apple keeps quite a few details secret, and its relatively unknown how much the parts cost; a good way to look at it is that for parts apple pays NO MORE than the amount specified. When it comes to flash, for instance, Apple generally pays less than wholesale prices due to very large contracts. Thus it is guessed how much they pay.

And my god, apple makes a profit, SHOCKING! We all know this. Apple has huge margins and we sit there and buy their products anyway cause its still cheaper than if we made them ourselves and even if there's reasonable competition we love and trust Apple. Or we hate and trust Apple. Or love and don't trust. Whatever, it doesn't matter. What does matter is that its important to realize business isn't a charity, and that you should buy what you like from who you like, or what you need from where you can get it. Importantly, you set up factories, invest in R&D, engineering, etc.; and when you put out a comparable product considering all these costs and the fact people need to get paid for their work, and you'd probably want to get money due to the work you put in...then you can complain the iPhone is too expensive because Apple's making a profit.

I...for now think the iPhone is too expensive because I don't like the storage options. Alas, I think many phones are expensive, and that's a personal thing.

 

[Wickedgardengtp]

Jobs and Wozniak are in the garage making the iPhone 5.

 

[imakesense]

i agree on price based on demand.

a lot of people dont understand that apple is still getting $600 per phone, whether its on a contract or not. a lot of people also dont understand that the phone costs nearly $200 to make, which is a HUGE chunk of change considering this does not include any other expenses needed to sell the phone.

Are you stupid?

So engineers, programmers, R&D, test labs, prototypes, building FACTORIES are all free?

What's the BOM of a Bentley? How about a BOM for a bottle of water? Or the fountain coke you happily pay $0.99 for?

.... These BOM shouldn't exist. They are completely irrelevant to anyone outside of large scale operations.

 

[acfusion29]

And the iPhone still retails for the same amount.

exact reason why i've stopped posting/browsing on these forums.

a bunch of people who don't know anything about anything.

 

[PsykX]

Which still makes no sense. 😀

Basic Econ 1010: you price it based on demand, not how much it costs you.

Not just that. Fact is, bills of material should never represent a big amount in a product.

Think of the employees, the machines needed, the engineering behind that, the assembling and packaging costs and the shipping fees.

If the BOM is $170, when you add all those fees you probably end up with $600.

So saying the iPhone 4 is worth $170 is the biggest mistake one can make, and many journalists say so because they don’t know what they’re talking about.😉

 

[rivero.julio]

cost

Does anyone know if they only take into consideration the actual parts and production or a complete aggregate cos of production including research, OS developing and all that. The production cost seems too low

 

[rivero.julio]

Not just that. Fact is, bills of material should never represent a big amount in a product.

Think of the employees, the machines needed, the engineering behind that, the assembling and packaging costs and the shipping fees.

If the BOM is $170, when you add all those fees you probably end up with $600.

So saying the iPhone 4 is worth $170 is the biggest mistake one can make, and many journalists say so because they don’t know what they’re talking about.😉

that was what I was thinking 170 seems very low for an Iphone I think you are right there is no way they are taking into consideration all the production costs.

 

[Tigger11]

Ok, and why do you say it is most likely not the chip or the phone from what the story printed?

I mean why wouldn't a chip or different antenna design not affect GPS and
how well it works?

GPS chips (and cores) are pretty much a known tech today, the story from post #14, is that while driving with his new CDMA phone after it had good sync (so not a speed issue, like we had with the phone upgrades), it lost contact 3 time during a drive, and his AT&T phone did not do that previously when he had done the same trip.

I just don't see the reasoning behind why it's not the chip or likely the phone (most likely cause I'm not sure what story you are referencing? are you referencing another thread?). Not saying you don't have one, but I'd like you to actually explain it.

Story is from somewhere else on the board, its part of post #14 on this thread which I was answering, the person is getting a loss of GPS during a trip and is blaming the chip, a chip is not a likely culprit for a disconnect, an antenna has a small chance at being the problem, but external (or software) is much more likely the culprit for a disconnect as discussed in the story of the disconnecting GPS.

It would be nice to see proof it's most likely something on verizon's end (cause I have AT&T) mostly cause that was one improvement I loved on my new iphone 4 over my old 3G, the GPS was very noticeably better (it was faster to get a lock and a lot more accurate. And I noticed this before I read they changed the GPS chip, I already had figured it out by difference in performance). I'd be upset if the change of GPS chip has made it go backwards cause I do foresee that is what apple will do in future iphones. Which means if I want to upgrade mine someday, it might mean I have to give up the better GPS (and that's one of the big reasons I love my phone is the GPS capability).

The issue is that we have know idea if both phones had been sitting side by side that they would have not both lost GPS lock that day. We have a tower in town that occasionally throws that its in China at us, its not really in China and depending on how the the software adapts to that data, you may get a hiccup on your driving help as it throws that data out and gathers new data, thats not the GPS working wrong, thats it being fed bad data. Everyone who has used a GPS regularly had driven a road one time and had no issues and another time got a different result, that doesnt mean the GPS chip is bad, it means it received different data, due to satellites, towers, or antennae.

Standard Disclaimer for my GPS posts.
My company does do lots of GPS work, but I dont have a dog in either chip.
-Tig

 

[Tigger11]

Does anyone know if they only take into consideration the actual parts and production or a complete aggregate cos of production including research, OS developing and all that. The production cost seems too low

Just parts is $171.35. Foxcom is getting $7.10 to put each one together, it includes no royalties, it doesnt include the OS cost, it doesnt include shipping, marketing, design and development, profit, etc. The nice thing about the teardown costs is it shows that Apple works very hard each year at keeping its part cost per unit at about the same level, so it continue to sell the phone at the same cost.
-Tig