Price decrease for Non-subsidized 4G iPhone? An analysis of numbers inside.

Discussion in 'iPhone' started by Tronic, Jan 28, 2010.

  1. Tronic macrumors 6502

    Tronic

    Joined:
    Jun 10, 2009
    #1
    If the 4G launches and prices stay the same, there will be this murky grey area at $500 - $700 where it will be hard to justify a 3GS over a iPad, phone capabilities aside.

    Okay If the iPad costs:

    Wifi:
    16gb $500
    32gb $600
    64gb $700

    3G
    16gb $630
    32gb $730
    64gb $830

    and the iPhone 3GS costs:

    16gb $600
    32gb $700

    and the iTouch costs:

    8gb $200
    32gb $300
    64gb $400

    what will the iPhone 4G cost???

    In my mind, the logical order of mobile Apple products is as follows: iTouch < iPhone < iPad < Mac. Following that logic, I can only assume that the base NON-SUBSIDIZED iPhone 4G will have to be cheaper than the base Wifi iPad. Yes, I realize the iPad is not a phone, but it does have a 3G chip so the price of the chip should not be taken into account. The hardware is there, minus the microphone and software. So an iPad is superior technology wise in all categories yet at current pricing it only holds a $30 lead over the base 3GS.

    According to the iSuppli 3GS component price breakdown, http://www.isuppli.com/News/Pages/iPhone-3G-S-Carries-178-96-BOM-and-Manufacturing-Cost-iSuppli-Teardown-Reveals.aspx?, the 16gb flash memory comes in at $24, the display module comes in at $24, the touch screen comes in at $16, the processor at $15, and the 3G chip at $13. Everything else is less than $10 each for a grand total of ~$180.

    If we believe this breakdown, then the 3GS is sold for 3.37 times its actual value. If we apply that same logic to the iPad we get these rough estimates. Let us just say that there is only a 3x markup. However I doubt Apple will be making such a profit at first.

    Wifi:
    16gb $500 = $166 actual cost
    32gb $600 = $200 actual cost
    64gb $700 = $230 actual cost

    3G
    16gb $630 = $210 actual cost
    32gb $730 = $245 actual cost
    64gb $830 = $275 actual cost

    This pricing scales accurately with the increasing size of 16gb flash modules at $24 each. EX: $166 + ($24*3) = $238 ~= $230

    And for the iPad, lets suppose that the display module is 3 times the price since it is 3 times as large as the iPhone. So $75. Same for the touch screen so $48. Only thing we are not too sure about is the price of the A4, and I doubt Apple will ever tell us. So we have an iPhone at $180 + $75 + $50 + A4 chip = $305 + A4 chip. If the A4 costs $50 we have $305 - $15 iPhone chip + $50 = $340. That equals a markup of 1.85x. Applying 1.85x to the iPhone 4g we get $333 and $380. Both way too cheap for Apple.


    Anyway after all the mumbo jumbo, I don't see how Apple could justify a 4G base price so close to the base price of a far superior product, the iPad. Please keep in mind we are talking about NON-SUBSIDIZED iPhones here.

    So when the iPhone is released this is what I think will happen. A switch to a smaller markup which means:

    iPhone 4G

    Non-Subsidized
    32gb $500 = 2.5x markup
    64gb $600 = 2.35x markup

    Subsidized
    32gb $200
    64gb $300


    Any thoughts on this? Did you get lost in the math? I did a couple times. Will Apple lower the non-subsidized price of the 4G to create more of a buffer between its products? Or will they maintain this gray area where its hard to decide which is a better buy? One thing is sure, whatever the price, people will buy it.
     
  2. Steve686 macrumors 68030

    Steve686

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    Location:
    US>FL>Miami/Dade>Sunny Isles Beach>Condo
    #2
    You have to take into account what the market will allow Apple to sell the phone for, also. The iPhone being the King of smartphones, affords it the luxury of absolute premium pricing regardless of component price, or it's own product line.
     
  3. aluren macrumors 65816

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    Sep 9, 2008
    #3
    So none of your analysis matter in the end! ;)
     
  4. GFSarah macrumors regular

    GFSarah

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    Location:
    North Carolina
    #4
    I've been wondering the same thing, albeit without all the math.

    Cheaper next-generation iPhones sure would be nice (and would make sense based on numbers alone), but I'm not going to hold my breath.
     
  5. Applejuiced macrumors Westmere

    Applejuiced

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    Location:
    At the iPhone hacks section.
    #5
    Pretty much :D
     
  6. Tronic thread starter macrumors 6502

    Tronic

    Joined:
    Jun 10, 2009
    #6
    yeah I just felt like running the numbers to get a feel for how everything was priced out. Apple has the market hooked and I'm pretty sure they could increase the price and still make record sales. But consumers sure do love getting more for less. The iPhone has increased Apples presence more than any other product. When AT&T subsidiaries were put in place with the 3G, it allowed so many more people to experience what Apple is all about and in turn show them why they should make the switch to a Mac despite its higher price to comparably PC's.

    Anyway I'm interested to see what others have to say about un-subsidized pricing.
     
  7. Steve686 macrumors 68030

    Steve686

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    Nov 13, 2007
    Location:
    US>FL>Miami/Dade>Sunny Isles Beach>Condo
    #7
    Apple actually did take a lower price shift with their laptop and iMac line reversing it's pricing trend year to year. My first gen UMBP I got for $1999 in October '08, is now replaced with a bumped up spec machine for $1699. So maybe iPhone will follow suit.

    Unless Apple releases iPhone to other carriers all the while trying to increase sales year to year, they will have problems getting your everyday Joe who currently has an iPhone, to shell out $$$ to early upgrade.
    There will be plenty of diehards that will pay. But at this point, I don't know how many people are left on the fence deciding whether or not to join ATT just for the iPhone. So how else can Apple build on it's phone sales?
     
  8. nehunte macrumors 6502

    nehunte

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    Apr 30, 2009
    #8
    What the hell is an "iTouch?"

    I've only heard of the iPod Touch.
     
  9. thelatinist macrumors 603

    thelatinist

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    Aug 15, 2009
    Location:
    Connecticut, USA
    #9
    Your math is interesting, but ultimately pointless. The price is not set by the cost of components, but by supply and demand. I'm sure Apple has a huge marketing department capable of analyzing demand curves and setting a price which will maximize profit. Please note that it is profit they are trying to maximize, not demand. They've shown time and again that they care far less about market share than profitability (as they should), and this is no different. If there is a change in price it will have nothing to do with the iPad and everything to do with their marketing department's assessment of what people are willing to pay.
     
  10. Tilpots macrumors 601

    Tilpots

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    Apr 19, 2006
    Location:
    Carolina Beach, NC
    #10
    Not really true. People will start seeing this price discrepancy soon and may opt for the Nexus One, The Droid, or any of the other smartphones out there.

    Apple's got the lead right now, but others are starting to make in-roads. A bit of a price drop for the 4G could make sure Apple maintains their strangle hold on the market. As some one mentioned above, they did it with the iMacs and had their most profitable quarter ever. Don't think this isn't going unnoticed in Cupertino.
     
  11. aristobrat macrumors G4

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    Oct 14, 2005
    #11
    I think your logic might be backwards.

    If the iPad is going to lower Apple's overall margin, then I'd think they'd continue to keep their higher margin devices (like the iPhone) high, to compensate.

    Besides, if they do lower the margin on the iPhone, the only thing that will effect is the carriers pocketbooks. I can pretty much guarantee you that any savings from the carriers buying cheaper unsubsidized iPhones would *not* be passed along to the consumer.
     
  12. aristobrat macrumors G4

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    Oct 14, 2005
    #12
    Apple's never really competed on price, nor has concerned itself with overall market share. i don't really see that much of a price discrepancy between it and the new competition. You'd think the new competition would be significantly undercutting price (not matching it) in order to make inroads... :confused:

    8GB iPhone 3G = $99
    4GB Nexus One = $180
    16GB Droid = $199
    16GB iPhone = $199
    32GB iPhone = $299
     
  13. Tilpots macrumors 601

    Tilpots

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    Carolina Beach, NC
    #13
    I see your comparisons, but these other companies are doing "buy 1 get one" deals left and right. For instance, if you buy the Droid, you get an Eris for Free on Verizon recently. I've seen the same deal with Blackberry's. So the stated price is not necessarily what you'll be paying for the device. As you hinted, this is what the other companies are doing to make the inroads. Two new costumers > one.

    Also, you have to believe that at the numbers of iPhones Apple's selling, they're going to start getting price breaks because of the bulk of units and components they are buying. And now with the iPad, and this is pure speculation, if the two devices share some of the same internal components, like the A4 chip, then costs to Apple drop again. So it's very possible that even a price drop might mean Apple is increasing their profit per device.
     
  14. aristobrat macrumors G4

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    Oct 14, 2005
    #14
    Gotcha. I hadn't seen where T-Mobile or Sprint were seriously doing the BOGOs with popular data phones like Verizon has been.

    Agreed.

    I just don't think that Apple lowering the unsubsidized price of the iPhone to carriers will result in carriers lowering the subsidized price of the iPhone to customers, esp. while they can sell the prior-generation iPhone for 1/2 price.
     
  15. aluren macrumors 65816

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    Sep 9, 2008
    #15
    It'll definitely be interesting to see what the iPhone 4G's unsubsidized will be, but I wouldn't be surprised if it's around the same as the iPad. I really don't think the iPad and iPhone are competing products. Those that want an iPhone are different than those than want an iPod Touch/iPad/Mac. To me those three devices are extra, non-essential devices. The iPhone, on the other hand, is something that I can't do without. No way am I going to carry a phone and an iPod Touch around at the same time... So in the end, I'll probably get the new iPhone even if it's more expensive than the iPad.
     
  16. Tronic thread starter macrumors 6502

    Tronic

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    Jun 10, 2009
    #16
    Were not talking about subsidized prices here. If Apple lowers the price, there is no way that AT&T is going to pass that on to the consumer if purchased with a two yeah contract. What I'm thinking about is the NON-SUBSIDIZED price. While cell phones are pretty much essential these days, there still is a feeling to me that a 3.5" phone should be cheaper MSRP then a 9.7" tablet. The technology is essentially the same.
     
  17. aristobrat macrumors G4

    Joined:
    Oct 14, 2005
    #17
    I understand that.

    My thought is that since virtually nobody pays the NON-SUBSIDIZED price for an iPhone, it's not enough of a factor to cause Apple to lower it for the iPhone 4G.

    In the end, the iPhone 3GS, for the vast majority of people, will cost them 2x+ less than the iPad (based on the $99, $199, $299 price-points that most people can buy iPhones at).
     
  18. thelatinist macrumors 603

    thelatinist

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    Aug 15, 2009
    Location:
    Connecticut, USA
    #18
    Yes, but on what other than size do you base this judgment? The processor in the iPad probably costs the same or less, the memory costs the same, the touch screen is probably only marginally more expensive, and the iPad has fewer radios, no camera, no microphone, and only one speaker. Who knows what other components were less expensive because not miniaturized? Aluminum costs about a dollar a pound. And manufacturing costs are surely comparable. In the end, the iPhone has got to cost as much or more to manufacture than the iPad.
     
  19. Tronic thread starter macrumors 6502

    Tronic

    Joined:
    Jun 10, 2009
    #19

    Thats very true. I wonder how many non-subsidized iPhones they actually sell. The only people that I think might buy them are iPhone users who break their phone and aren't eligible for an upgrade. But even then, aren't we allowed to replace at a cheaper price?
     

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