iPhone 5s Component Costs Estimated to Begin at $199

[158273]

iPad Retina is $529 with a BIGGER Screen and BIGGER Battery and LTE antenna

why does a Phone cost $649 ?!?!

extra $120 for what?! WHAT?!

re-freakin-diculous !!

Like you said, an iPad is bigger, hence it is easier to fit all the components in there. Thin miniature products like iPod touch and iPhone would require more care.

 

[Count Blah]

At some point, you have to realize that the cost to produce each additional widget does not determine the amount you charge for it.

Oh, I realize it just fine. It's when will Apple realize it, when the normal customers looks elsewhere for their smart phones, due to this fact.

With market share shrinking every day, except perhaps the few days around iPhone launch time, it seems normal customers are realizing that it's not such a good deal at an ever increasing rate.

 

[kdarling]

People keep bringing up R&D and other costs, but never seem to sit down and calculate them. So early last year I did, using figures from filings and Apple trial testimony. Since it's been a year or two since I did this, the numbers are a bit out of date, but they're in the ballpark, and some of it was surprising to me:

Apple said at trial that they make an average 53% gross profit margin ($340) on iPhones. That's their raw revenue after paying for the parts, manufacturing, packaging, storage, shipping, and patent licenses per device.

Of that $340 gross per phone, about $20 goes to R&D, $50 to support Apple employees and buildings and sales and ads, and $70 is put aside for taxes... leaving a nice net profit of $200 (30% net margin) per phone.

The only other smartphone maker to meet or beat that kind of margin % was RIM in its heyday. Most others average 15-25% for smartphones, I believe.

Summary: Out of the $640 Apple sells each iPhone for, $300 goes to its production and related fees, $140 goes to corporate costs, leaving $200 or more clear profit to stick in the bank.

Again, the numbers are old, so I'd drop them all by about 5% for today's device.

 

[BaldiMac]

Oh, I realize it just fine. It's when will Apple realize it, when the normal customers looks elsewhere for their smart phones, due to this fact.

With market share shrinking every day, except perhaps the few days around iPhone launch time, it seems normal customers are realizing that it's not such a good deal at an ever increasing rate.

I'm sure there shrinking market share is because of their upgrade pricing and not because of the growth of the low end of the smartphone market.

Oh, wait, your theory seems to ignore the fact that more people choose to buy the iPhone every year.

 

[Jsketch]

Oh, wait, your theory seems to ignore the fact that more people choose to buy the iPhone every year.

At a higher rate than overall smart phone market growth?

 

[BaldiMac]

At a higher rate than overall smart phone market growth?

Nope. That's what I meant by "shrinking market share".

----------

People keep bringing up R&D and other costs, but never seem to sit down and calculate them. So early last year I did, using figures from filings and Apple trial testimony. Since it's been a year or two since I did this, the numbers are a bit out of date, but they're in the ballpark, and some of it was surprising to me:

Apple said at trial that they make an average 53% gross profit margin ($340) on iPhones. That's their raw revenue after paying for the parts, manufacturing, packaging, storage, shipping, and patent licenses per device.

Of that $340 gross per phone, about $20 goes to R&D, $50 to support Apple employees and buildings and sales and ads, and $70 is put aside for taxes... leaving a nice net profit of $200 (30% net margin) per phone.

The only other smartphone maker to meet or beat that kind of margin % was RIM in its heyday. Most others average 15-25% for smartphones, I believe.

Summary: Out of the $640 Apple sells each iPhone for, $300 goes to its production and related fees, $140 goes to corporate costs, leaving $200 or more clear profit to stick in the bank.

Again, the numbers are old, so I'd drop them all by about 5% for today's device.

Thanks! Where does retail commission come in? I assume that would be a significant difference between retail and direct sales.

 

[cheesyappleuser]

It's always worth mentioning. Apple does not profit $451 per device.

The component cost is only a fraction considering R&D Engineer/HR/Legal/etc hourly wages during development time at CA wages and development tools and resources, and on and on and on.

They still profit a ton nevertheless. But they definitely don't profit more than 50%. I hope.

 

[iRalph]

No one ripped you off. Don't like it, don't buy. Pretty simple.

But aren't the people who don't care at paying that price between 16GB and 64GB still getting ripped off?.

You may not know you're getting ripped of but that doesn't change the fact that you are. Let's face it: 100$ is too much to ask between storage configurations.. Don't you agree?

 

[BaldiMac]

But aren't the people who don't care at paying that price between 16GB and 64GB still getting ripped off?.

No.

You may not know you're getting ripped of but that doesn't change the fact that you are. Let's face it: 100$ is too much to ask between storage configurations.. Don't you agree?

No.

 

[smetvid]

I don't consider it a rip off but why can an iPod touch cost much less even though most of the components should cost the same. Excluding the cell phone portion of course which is only a fraction of the cost.

Based on the logic of pricing for the iPhone which again on its own would be fine the iPod touch should cost $600.00 and the iPad should cost more than that.

Most of the hardware after all is the same. Of course this isn't aimed at Apple but the cell phone market in general. They all do the same thing so we can't criticize Apple without also criticizing Android phones. If an iPod Touch or Android tablet can be $200.00 why is it that phones are magically worth $400.00 more because of cell chips?

 

[expertmonk]

I just came to see how many people here ever took a microeconomics course... annnnnd... not many. Predictable.

The price is the price. That's how markets work. Complain all you want.

 

[BaldiMac]

I don't consider it a rip off but why can an iPod touch cost much less even though most of the components should cost the same. Excluding the cell phone portion of course which is only a fraction of the cost.

Based on the logic of pricing for the iPhone which again on its own would be fine the iPod touch should cost $600.00 and the iPad should cost more than that.

Most of the hardware after all is the same. Of course this isn't aimed at Apple but the cell phone market in general. They all do the same thing so we can't criticize Apple without also criticizing Android phones. If an iPod Touch or Android tablet can be $200.00 why is it that phones are magically worth $400.00 more because of cell chips?

Once again, because price is based on consumer value, not component costs.

 

[StyxMaker]

Wow. Nice margins. Why be upset with Apple tho? They're a business. Besides, they aren't the only ones marking up their smartphones. Android does the same thing. People pay what the market will bare. And its obvious people cannot do without their smartphones, and are willing to pay.

What phones does 'Andriod' make? I've never seen one if their phones in the AT&T store.

 

[840quadra]

People keep bringing up R&D and other costs, but never seem to sit down and calculate them. So early last year I did, using figures from filings and Apple trial testimony. Since it's been a year or two since I did this, the numbers are a bit out of date, but they're in the ballpark, and some of it was surprising to me:

Apple said at trial that they make an average 53% gross profit margin ($340) on iPhones. That's their raw revenue after paying for the parts, manufacturing, packaging, storage, shipping, and patent licenses per device.

Of that $340 gross per phone, about $20 goes to R&D, $50 to support Apple employees and buildings and sales and ads, and $70 is put aside for taxes... leaving a nice net profit of $200 (30% net margin) per phone.

The only other smartphone maker to meet or beat that kind of margin % was RIM in its heyday. Most others average 15-25% for smartphones, I believe.

Summary: Out of the $640 Apple sells each iPhone for, $300 goes to its production and related fees, $140 goes to corporate costs, leaving $200 or more clear profit to stick in the bank.

Again, the numbers are old, so I'd drop them all by about 5% for today's device.

Nice post and insight.

I would have to imagine (based on my earlier post) that Samsung is now in a similar league. People did studies on the component cost of the S3 and later S4 and found that they too have a reasonable gap between customer price, and component cost. Samsung also has the benefit (or drawback depending on how you look at it) of building many of the components within their subsidiary businesses.

 

[firewood]

But aren't the people who don't care at paying that price between 16GB and 64GB still getting ripped off?.

Nope. If anyone doesn't not think it's more than worth it, they don't have to buy one.

Even if it cost nothing to make.

That loaf of bread you purchased was made from sunlight, rain, air, and dirt. All around you for free. Getting ripped off all the time, are you?

why does a Phone cost $649 ?!?!

Not cost. Just the price. Set by supply and demand.

Given the shortages, the price should have temporarily been even higher to reduce the shortages. If a store only has 20 units, they should raise the price until exactly 20 people really want it enough, and think its worth exactly the right price or even more, to stand in line that day.

 

[giantfan1224]

And they still can't make 32GB the standard for the lower cost version instead of 16GB.
Greedy apple is greedy.

I'm sure if Apple thought they could make more money with 32GB as the base, then they would do it. They don't, however, have to provide you with whatever you want at a price you believe is reasonable.

And if Apple is greedy, isn't every company that tries to maximize profit (which is all of them) guilty of being greedy too?

 

[Gasu E.]

When I worked as a design & production engineer in the electronics industry (admittedly some time ago!), we had a rough rule of thumb during early design stages.

The BOM (bill of materials) cost could not be more than 1/3 of the target end price. This allowed us to account for R&D, shipping, marketing, other general admin & fixed costs etc etc etc, and still make reasonable net margins at the end of the day.

It looks like Apple is not too far from this model, though they squeeze more margin out of the supply chain than is usual, and make a big chunk of change out of the middle-of-the-range models, which is where I believe the majority of the actual profit comes from - much bigger margin and a sizeable percentage of unit volume sales combines to generate >50% of the profits for the product in question - especially the iPad, iPod and iPhone.

Good comments. I would add, as someone who sets prices on tech products, that we often choose to take a hit on margins on the lower-end models, providing a relatively cheap cost of entry for new customers. We then price for bigger margins on higher-end models, which we target at less price-sensitive customers. The higher end models end up paying for a disproportionate amount of fixed costs such as R&D and marketing.

 

[Springman]

Nothing wrong with good old fashioned capitalism along with simple supply and demand economics. If demand is high enough, people will pay a higher price. Like the story I read about the person that stood in line, bought a gold 5s and sold it for $10,000. Hey, if someone is stupid enough to pay for it to have in now instead of in a few weeks when inventories improve, so be it.

Opposite of highly sought after Apple products are MS products - they can hardly give away their Surface inventory - because nobody wants to buy them - zero demand.

 

[sofila]

$19 to 200 for 16GB to 64 GB: this is the thing I love most from Apple.

I suggest Apple to prepare a list of the "proud to spend more if asked by Apple" and charge them $100 more on every new Apple product, whatever it will be.

Just to increase their profits, you know. It seems the only thing important for someone here

 

[Supermule]

I want one of these "make it yourself" kits

 

[djrod]

Not only R&D. The manufacturing tooling (including pre-payments for expanding display and semiconductor fabs, & etc.) requires $Billions in investment.



Apple can't rip you (or anyone else) off unless you voluntarily give them your credit card. If anybody thinks the memory isn't worth it, they can just keep their money in their pocket. It's called willpower.

I get the extra storage because it's far far cheaper for me to do that, than to find and spend $Billions for the tooling needed to make my own smartphone.

Ok, maybe rip off is not the right way to put it, Apple doesn't force you to buy nothing and I know we vote with our money, but I think it's obvious that the extra storage is a big profit maker for Apple as is the extra storage / RAM on Macs.

 

[Velin]

The base-model 5s price seems fair given the component costs, coupled with all the R&D, marketing, stores, etc., along with continued iOS 7 support. Speaking of which, Apple, get on with iOS 7.1, it needs optimization big-time.

 

[the8thark]

+ Markup

+ Markup is what we pay. It's not the final cost of each phone to Apple.

 

[sofila]

I'm sure all the people complaining about the markup on 64GB model are likely overpaid for what they do from 9-5 everyday.

I am sure you're wrong. You don't know me, my job, my disposable income. I don't know you, but...the very moment you write "all the people" you go on the wrong side

 

[richpuer]

these parts breakdowns dont include the fact that apple is buying millions of each of these parts and obviously is getting volume discounts. those prices are retail... after all pricing discounts this phone probably really costs like 50 bucks or less, excluding labor, advertising, overhead, etc..