iPhone 6 Component Costs Estimated to Begin at $200, Samsung Supplying Some A8 Chips

[fertilized-egg]

Well apple didn't have to hire file system, multitasking, removable storage, Quad HD display
or smart stylus developers. So they saved a bunch o'money there.

And in what respect is Apple hurting?

Apple definitely did have to hire people developing file system and multitasking. I'm just flabbergasted there are anyone who somehow thinks iOS doesn't have multitasking or filesystem. It always had both, they just weren't exposed to third party developers. Not to mention Apple has had a full desktop operating system for decades now. Android makers rely on Google for the base software and they buy components from other companies or other divisions. They still have to have software developers but it's not quite the same as maintaining one's platform.

On a tangential note, the difference here is that with Apple, there's no other customers to spread cost on their development. What they design and make is customized for their own needs only. On the other hand Asian conglomerates like Samsung, LG, and Sony make components for practically anyone who's willing to buy and thus their cost structure is rather different. For instance because Samsung's mobile, display, and chip divisions are run as separate profit centers, they actually negotiate with each other for component prices, which means they run more like separate companies. In some cases they are really separate companies, for example LG Display and LG Electronics are traded separately.

Most critically, for employees and executives who work at the divisions of Samsung, your bonus payments depend on the profitability of the division, not Samsung as a whole. This is why you see detailed profit report for each division of Samsung, and sometimes the relationship between divisions can even get acrimonious. There has even been a rumor Samsung's mobile division is designing its own processor since they weren't happy with Samsung's processors from the other division. Thus for Samsung's semiconductor division, they really try hard to retain a client like Apple and they have been known to go pretty far in order to accommodate Apple's demands. Unfortunately for them, their brethren at the mobile division has different ideas and they are the big dogs in the company now.

 

[xmichaelp]

Another thing to think about as well is that even though there are higher profit margins on the 64 and 128GB models, having higher profit margins on those allow the 16GB model to be priced where it is. In order to have an entry level cheaper phone, they must be able to have higher profit margins on the higher end phones so it all balances out. Business 101 type stuff, but most people don't think about this before commenting.....

Yeah they really need a higher margin on the 16 GB model... They just want a higher margin because they can, and it works.

 

[RockSpider]

They sell iPhones at a huge profit because that's what they're worth to the market. And if you think they're worth that much mostly because of the Apple logo, you're more wrong than you're right.

That's funny, I'm pretty sure if they put an Apple logo on a brick, it would sell in the millions, oh they already did, the iPad 3.

 

[xmichaelp]

nevermind

 

[ApfelSchaf]

So much about "premium" aluminium vs "cheap" "plastic" LOL...

• iPhone6+ bend test: https://www.youtube.com/watch?v=znK652H6yQM
  
• Samsung Galaxy Note 3 bend test: https://www.youtube.com/watch?v=FwM4ypi3at0

#WillItBend

 

[JCrz]

Well apple didn't have to hire file system, multitasking, removable storage, Quad HD display
or smart stylus developers. So they saved a bunch o'money there.

And in what respect is Apple hurting?

Re-read what I wrote. I said that it hurts Apple that they have to write an entire OS while Android manufacturers don't have to do that. That is NOT the same as saying Apple is "hurting". That is the root of your confusion.

Also, developing an entire OS is much, much more intensive than writing components like file system, etc. that you listed. You're listing parts of an OS and things that Apple also has to develop (like a display).

----------

Apple definitely did have to hire people developing file system and multitasking. I'm just flabbergasted there are anyone who do not think iOS doesn't have multitasking or filesystem. It always had both, they just weren't exposed to third party developers. Not to mention Apple has had a full desktop operating system for decades now.

Android makers rely on Google for the base software and they buy displays from other companies. They still have to have software developers but it's not quite the same as maintaining one's platform.

On a tangential note, the difference here is that with Apple, there's no other customers to spread cost on their development. What they design and make is customized for their own needs only. On the other hand Asian conglomerates like Samsung, LG, and Sony make components for practically anyone who's willing to buy and thus their cost structure is rather different. For instance because Samsung's mobile, display, and chip divisions are run as separate profit centers, they actually negotiate with each other for component prices, which means they run more like separate companies. In some cases they are really separate companies, for example LG Display and LG Electronics are traded separately.

Most critically, for employees and executives who work at the divisions of Samsung, your bonus payments depend on the profitability of the division, not Samsung as a whole. This is why you see detailed profit report for each division of Samsung, and sometimes the relationship between divisions can even get acrimonious. There has even been a rumor Samsung's mobile division is designing its own processor since they weren't happy with Samsung's processors from the other division. Thus for Samsung's semiconductor division, they really try hard to retain a client like Apple and they have been known to go pretty far in order to accommodate Apple's demands. Unfortunately for them, their brethren at the mobile division has different ideas and they are the big dogs in the company now.

EXACTLY!!!

In terms of software, Apple is doing the job of Google + Samsung, etc.

Apple just does does a better overall job than any of the Android manufacturers. But Apple does have to do more work in software.

 

[D.T.]

Nope. Wish people would learn elementary school math before posting on forums. Add it up. Find me one contract where it's cheaper or the same price as getting the iPhone unlocked and using a network without a contract.

I'll wait.

(This is my network: http://48months.ie)

I wanted to cross check this with the current plans, etc., and in my case, it’s cheaper to go contract + “subsidized". Here’s my calculations, cross check me, I wouldn’t mind saving a few bucks

First, the TL;DR version: contract/sub’ed is $420 cheaper over 24 months on Verizon. We’ve been with AT&T for 10+ years, switched to Verizon ~20 months ago. I need solid, national coverage including LTE.

On to the math

$70 4GB data + unlimited voice/txt, shared
$40 per smartphone

So that’s $1,680 flat account ($70 x 24), and $1920 for the two smart phones ($40 × 24 mos × 2 phones), $3600 without equipment for 24 months

At that price, the two phones would be subsidized @ 399 + 299, $698, total for account, two lines of 4GB access plus two phones, $4,298

Side note: the taxes on equipment is based on retail, so that removes the advantage of the “cheaper” phones above, so I thought maybe outright purchase might be the way to go.

So same routine, with the discount for being-your-own:

$70 4GB data + unlimited voice/txt, shared (same)
$30 per smartphone ($10 discounted per phone)

So that’s $1,680 flat account ($70 x 24), and $1,440 for the two smart phones ($30 × 24 mos × 2 phones), $3120 without equipment for 24 months, aha! So $480 cheaper over the life of the account (validated as $10 discount X 24 x 2. $480 difference).

But now factor in the outright purchase of those same two phones at $849 + $749, that’s $1,598, making the 24 months $4,718.00 (cross checked as 1598 - 698, $900 more on equipment but only $480 saved on the contract).

If we had 3 lines, it gets much closer, and/or if we needed more data, it might make more sense, because at the 10GB plans, the discount per phone becomes $25 off (so for us the sub’ed 4GB is the same as 10GB).

*shrug*


[edit]

My understanding (and math skills!) seem sound: I spoke to a member here on the forums who is with Verizon, he’s been fielding questions regarding accounts/costs/etc. in the iPhone area and he confirmed what I indicated above. That is: the cheaper option is contract + lower cost devices.

 

[SolarShane]

and this does not even include the R&D that goes into those devices ....

What R&D? All they did was make the thing larger and thinner. Apple is laughing all the way to the bank.

 

[tdream]

the component cost of a banksy piece is about $10

At the intersection of technology and liberal arts the real estate is pretty high

Are they produced in the tens of millions by little asian children?

 

[skinned66]

Arent you...letting them get away with it?

I'm of the opinion that when they make stuff like this, it's very difficult not to

I mean, I still think 16GB base model was excessively stingy, but it's not going to stop me from buying the 64GB model eventually. I'm a good sucker, albeit begrudgingly.

 

[Gasu E.]

You are kidding yourself if you think it's 50%. All those retail stores come for free?

Actually, there's no reason to jump through hoops to try to figure out how much profit Apple makes, as it is already calculated across ALL their products in their annual report. Apple makes a bit over 20% profit on their sales, which is quite excellent. It doesn't matter, or even mean that much, how much they make on each phone, as many of their costs are amortized across all their products.

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What R&D? All they did was make the thing larger and thinner. Apple is laughing all the way to the bank.

Right, Apple has practically no engineers on their payroll... finished designs just jump out of Jony's head onto the Foxconn assembly line.

 

[cmaier]

What R&D? All they did was make the thing larger and thinner. Apple is laughing all the way to the bank.

Yes. They have 1000 CPU designers averaging $150K/year operating a press to make it skinnier. And 1000's more signal integrity engineers, firmware engineers, verification engineers, materials engineers, industrial engineers, etc. doing the same.

 

[Gasu E.]

The freedom for the consumer has never been more large, the choice made is made through emotional needs, not rational ones.

You are undoubtedly speaking from intimate knowledge of the behavior of the consumer you are most familiar with: yourself.

While I have no reason to doubt your assessment of your own behavior, extrapolation from a single data point tends to be very unreliable.

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Are they produced in the tens of millions by little asian children?

You mean like this?

 

[newmacuser14]

This is absurd, they will continue to milk the consumer for all we have until we stop buying these over priced products.

 

[Zinthar]

A 69% profit margin is pretty amazing. I wonder what the margin is for other companies like Samsung when they make a new phone...

IHS estimated the S5 cost Samsung $256 to build when it first came out, so they're looking at around 60% or better gross margins on their flagship phones as well. I'd expect >50% for the other Android OEM flagships as well (when they're priced at $600 or more off contract).

In practice, though, Apple is much more profitable than the Android vendors because the sheer volume of units they sell makes the fixed R&D costs negligible when spread across each unit sold. That's not really the case for the Android OEM's, other than Samsung.

 

[fertilized-egg]

Yes, Qualcomm went to UMC for modems when their 28nm products were taking off like crazy and TSMC didn't have great volume yet.

That just reminded me that this isn't the first time Samsung was implicated in a multi fab production of an SoC. When the deal for those modems happened, Samsung and UMC's names were mentioned as the potential supplier of Snapdragons. As it turns out, they were asked for modem production rather than SoCs.

I'll be really impressed if Apple actually pulled it off. Moving between fabs in two successive generations as they are rumored to be will be hard enough and this seems even more difficulty than that. But I think it's most likely another mistake made by the analyst based on hearsay given how unprecedented such move will be.

 

[cmaier]

That just reminded me that this isn't the first time Samsung was implicated in a multi fab production of an SoC. When the deal for those modems happened, Samsung and UMC's names were mentioned as the potential supplier of Snapdragons. As it turns out, they were asked for modem production rather than SoCs.

I'll be really impressed if Apple actually pulled it off. Moving between fabs in two successive generations as they are rumored to be will be hard enough and this seems even more difficulty than that. But I think it's most likely another mistake made by the analyst based on hearsay given how unprecedented such move will be.

As someone who has designed microprocessors of similar complexity for multiple processes at once, I really really think they didn't. The only good reason to do it is if you are designing hard IP to be linearly shrunk for the second process, or if management has gone completely awry (I've been in both situations).

 

[mdlooker]

With a contract you end up paying for that phone 3 times over.

199 for an iPhone? Try getting a new BMW for 2000

Absolutely not true. My plan will cost the same whether I buy the phone outright or subsidized. Annnnd I was able to get my upgrade fee and "new plan" fee waived!

 

[rGiskard]

At least this article addresses the fact that it doesn't cost $200 to make an iPhone 6 - millions went into R&D and testing and such.

Spread that out over millions of iPhones sold, and what's it come to, a few bucks per phone? Plus, much of the R&D is factored into component costs, for example the A8 SoC.

Don't mean to trivialize R&D costs, just put them in perspective. Personally I'd rather Apple spent even more on R&D and charged an extra $5 or $10 per phone to cover it. Then at least their phones wouldn't bend.

 

[rGiskard]

Absolutely not true. My plan will cost the same whether I buy the phone outright or subsidized. Annnnd I was able to get my upgrade fee and "new plan" fee waived!

But your contract has the cost of the phone subsidy factored into it (along with an obscene profit margin far beyond even Apple's, but that's another topic). Add up all payments and the cost of the phone and you're paying thousands per year to use an iPhone.

Check out the trade-in offers for an idea of how much telecoms make off those monthly charges. I can trade in my 4S and get a 6 at no charge. It's more important to Verizon to keep me shoveling monthly payments into their coffers than to charge me for a $600 phone!

 

[StyxMaker]

This is absurd, they will continue to milk the consumer for all we have until we stop buying these over priced products.

Spending a portion of my disposable income for the Apple products I enjoy using is hardly being 'milked for all I have'.

 

[Tech198]

"Some" is better than "None"

Samsung is in the game.

 

[hachre]

Don't put too much stock in the "RD" argument.

Remember, when they make these calculations, they're evaluating cost of individual components.

The cost of those parts are what they are to recover R&D expenses.

That is only partly true. The individual parts have R&D princed in, yes. But there is also a huge amount of R&D in putting parts together, selecting the right parts for a device, trying many out, seeing what would work well together.

Basically what you're saying is the R&D of the lego pieces are priced in and that's correct. But you're missing the R&D of the thing that is constructed out of the lego pieces.

 

[melchiorsen]

Reality distortion field put aside/

1. The cost of the components include the R&D put into them. In theory you could buy the hardware components and construct the phone yourself (not that you would get a working phone that way). There's R&D spend on interior and exterior design but that cost is split over millions of devices.

2. Galaxy S5 components were estimated at $256 and similar specs phone OnePlus One should be around the same. The latter with a retail price of only $300 off contract. OnePlus have R&D as well, but they operate with a very very slim profit margin.

3. Apples strength is their optimization and tight control of software. It allows them to develop an OS which will work on lower cost hardware which results in higher profit margins.

4. Apple retail stores help increase sales and is also profitable on their own.

5. Apple has really found an excellent way of creating huge profits in the tech market and I have huge respect for that. With $100+ billions in cash they are not starving or seeking compassion, they are just smiling all the way to the bank

6. iPhone is a great product and the perceived value is what people are paying for. No shame in that, I just don't need to defend the huge margins of the product.

/Reality distortion field restored

 

[Keane16]

Don't put too much stock in the "RD" argument.

Remember, when they make these calculations, they're evaluating cost of individual components.

The cost of those parts are what they are to recover R&D expenses.

Thus, the only aspect of the iPhone evaluation that isn't being correctly assumed is ergonomics, advertising and software. As none of those things can be quantified.

That said, over the sale of all phones, given that much of what is now was taken from research prior, I wouldn't imagine the cost to produce being more than an additional $15 or so.

Bottom line, Apple could sell these devices for a LOT less. But they know their customer base well... they'll buy and pay for just about anything with the Apple logo on it. (that's blunt truth folks)

$15 per iPhone to develop iOS, OS X tie-in, run the stores, transport the components, transport the finished products, ship the products to customers etc. Ha. Tim Cook is good at supply chain, but not that good, ha. Although user nagromme has already explained this to you so hopefully you understand a bit better how this all works.

Also remember Apple doesn't have any serious ad revenue from the iPhone - Google mines a lot of data from Android - anonymises it and sells it on. That's why they can sell their Nexus devices at near cost. They don't need the hardware sales money to run their business. They just need a lot of people using their software and services. They also don't have a global store network - running them Apple Stores is not cheap.

"But they know their customer base well... they'll buy and pay for just about anything with the Apple logo on it. (that's blunt truth folks)" - You need to get off that soap box, you're making yourself look silly. If the iPhone cost 20% more than it does I wouldn't buy it. And I wouldn't recommend it to any friends. But at its current price I think it's great value and I recommend it all my friends who can afford it (amongst other options, as everyone wants different things). If they are price sensitive I usually don't recommend the flagship iPhone.

The way you're talking it would be stupid for Apple not to raise prices further, right? Because they'd still sell the lots of units… Not a chance.

Not at all.

There are plenty of options in the cell phone market that provide to the customer identical user experience. And or at least, functionality.

Hell, an old Blackberry still makes phone calls, handles texts, emails, etc. with ease.

The attraction of an iPhone over a cheaper, easier to get Android device is that it is made by Apple.

The only counter argument would be investement in ecosystems. Assuming you've invested hundreds, or thousands into iOS applications. BUT, if thats the case, again, all that means is Apple has you locked in and as such can charge whatever they want.

The freedom for the consumer has never been more large, the choice made is made through emotional needs, not rational ones.

You kill the rest of your post with the first line "or at least, functionality". I buy Apple stuff for many reasons. Functionality is one, and obviously important. But also for many others - build quality, support, associated 1st party software + services (iTunes U being one of my favourites), 3rd party hardware choice etc. Alos:

- I trust them more with privacy than companies who need my personal data to run their business (e.g. Google).
- I like the Apple Store network - nobody else can provide me with that "identical user experience".
- I like the third party hardware ecosystem around iOS which is by far the best in market
- Tied to the above AirPlay murders other solutions in my testing (for example I wouldn't change my Zeppelin Air for anything else right now because of a combination of user experience thanks to AirPlay and sound quality.
- I have always liked the tight integration of music, photos and videos between my iOS devices and my Mac -again this is possible on other platforms but IMO not to the same standard (and I think Apple pulls further ahead with Continuity).

I've used a lot of phones over the years - and the camera on the iPhone is still second to none for me - speed of initiation plus quality. (Some Lumia's can definitely shoot better pictures but their speed and software let them down).

If you genuinely think "There are plenty of options in the cell phone market that provide to the customer identical user experience" to my Apple gear - I would love to hear them.

"The attraction of an iPhone over a cheaper, easier to get Android device is that it is made by Apple". Couldn't be further from the truth for me. I don't care who makes it. I want what’s best for me.

As I mentioned I like Apple stuff for many reasons (some mentioned above) but I will happily switch to other platforms and or ecosystems if they met my needs as well. But for me and my needs I haven't found one. I used Windows for many years, dabbled with Linux distros and settled over the last few years on Apple hardware. Things like Touch ID keep me right here too.

You come across as a typical price conscious customer. Nothing wrong with that. But I value more than just the price of entry to my computing devices. I try to look at the whole picture - from what I get for my money in terms of functionality, my privacy (more and more important as companies collect increasing amounts of data) the associated support to the 3rd party hardware and software ecosystem.