Why are iPhone's so much more expensive than iPod Touches?

Invincibilizer said:
You obviously have no clue of how Apple collectively has saved up 70 billion dollars of wealth.
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No I understand that apple makes huge profit margins on all there products.
I was just saying that the reason the iPhone costs so much more is due to
1) R&D
2) legal/paying developers/etc
3) also phones are generally subsidized
 
wrinkster22 said:
No I understand that apple makes huge profit margins on all there products.
I was just saying that the reason the iPhone costs so much more is due to
1) R&D
2) legal/paying developers/etc
3) also phones are generally subsidized
Click to expand...

Thank you for a good spot to jump in!

1) Apple spent a little over $2 billion this year on R&D. If every penny of that went to just the phone, that would only be $2.4 billion / 80 million phones = $30 per device. Throw in the other mobile devices (iPod:40m + iPad:40m) and it's down to $15 per device. In reality, there's also ATV, the Macs, etc.

The point is, R&D isn't that big a factor on a per-device basis.

2) Phone related licensing fees are probably around $40 per device.

3) Subsidies are loans by the carriers to customers, not loans from Apple.

--

PS. Estimation corrections welcome. I have a bunch of nine year olds playing around me today, and it's hard to concentrate :)

PPS. I wonder how much LTE licensing is. If it's high, it could keep keep Apple away.
 
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kdarling said:
Thank you for a good spot to jump in!

1) Apple spent a little over $2 billion this year on R&D. Even if every penny of that went to just mobile devices (not ATV, Macs, etc), that would only be $2.4 billion / (iPhone:80million + iPod:40m + iPad:40m) = $15 per device.

2) Phone related licensing fees are probably around $40 per device.

3) Subsidies are loans by the carriers to customers, not loans from Apple.

Total = extra $55 for R&D and licensing for a phone, along with about $30 more in parts, or just $85.

Even if we're generous, and make the R&D be covered totally by just the iPhone -- plus double the licensing fees -- that's still only $140 more for a phone.

So those things alone don't explain the $250 vs $700+ retail price difference. Interestingly, other companies sell PMPs and phones for about the same price difference.

PS. Estimation corrections welcome. I have a bunch of nine year olds playing around me today, and it's hard to concentrate :)
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So, basically, "because they can" ;)

As far as subsidies go, it has been speculated that each carrier actually pays a good chunk less per phone than retail value. Do you feel this statement holds water?
 
It really is a "because they can". The high end products always have great profit margins and pleases their wall street overlords. This is true in pretty much every field.
 
More research and development went into each iPhone iteration, where as iPod touches are just based off of the iPhone, so not much of its own R&D were needed. Remember that when you buy a product, you don't only pay for the materials, but take into account the following:

R&D (Millions upon millions of $$- Easily the most expensive part of any product)
Shipping costs
Software Licenses
MPAA/RIAA Licensing for iTunes

etc..
 
dontwalkhand said:
More research and development went into each iPhone iteration, where as iPod touches are just based off of the iPhone, so not much of its own R&D were needed. Remember that when you buy a product, you don't only pay for the materials, but take into account the following:

R&D (Millions upon millions of $$- Easily the most expensive part of any product)
Shipping costs
Software Licenses
MPAA/RIAA Licensing for iTunes

etc..
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Read post #53. Assuming his stats are accurate, it's not THAT much more.
 
lordofthereef said:
Read post #53. Assuming his stats are accurate, it's not THAT much more.
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Remember though that one can not predict how many phones will sell, you have to cover your ass in all directions. If Apple only sold 2 million of the iPhone 4S, now what? Sure theres sales goals, and analysts, but the market can change very fast...and we all know Apple isn't a company to lower prices over time either.
 
dontwalkhand said:
Remember though that one can not predict how many phones will sell, you have to cover your ass in all directions. If Apple only sold 2 million of the iPhone 4S, now what? Sure theres sales goals, and analysts, but the market can change very fast.
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I would give you that with the first iPhone. Since then, every iPhone has sold better than the previous model historically. You base your pricing on sales goals as well. You go for something you can meet. This way everything else is icing. And you are right, they don't lower prices over time... "because they can!" (read: don't have to).
 
lordofthereef said:
So, basically, "because they can" ;)
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As someone else mentioned above, there's a reason why Apple is stashing away tens of billions of dollars, and it's not because they're pricing their items too low :)

Common analyst wisdom is that Apple has a gross profit margin of about 55%.

So if Apple is selling the iPhone 4S for $650, then they should be making $358 gross profit and the phone costs $292. Let's see if that works out:

A rough (but experienced on other devices) calculation for 16GB 4S costs are: parts (~$190), labor (~$5), box/etc ($7), shipping ($15), R&D ($15), and licenses (~$40), for a total cost of $272. For a profit margin of 55% I'm low by $20, which could be consumed by higher licenses or maybe even advertising. (*)

Now contrast that with Apple's current retail price for the 3GS: $375. The parts and labor cost less for it, and the R&D is long past paid for, so it probably makes them "only" about $130-$150 per device, or a 35-40% profit margin ... which is closer to what most phone makers make.

(*) One analyst claimed 58%, which would put cost at $273, which is right on our calculation.

As far as subsidies go, it has been speculated that each carrier actually pays a good chunk less per phone than retail value. Do you feel this statement holds water?
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I honestly don't know. If I had to guess, judging from wholesale prices across the net, I'd guess that carriers make less than $20 per iPhone and that's why their salespeople don't want to push them. I suspect the carriers make a lot more (i.e. pay less per phone) for other makes... plus get better deals on getting rid of old stock.

At the same time, whereas carriers don't make as much upfront from iPhone hardware sales, it's also been hinted many times that Apple shares customer App Store profits with each carrier, so that kind of makes up for it.
 
iSayuSay said:
It is "retina" ... It's Apple's name for display which pixel density > 300 ppi.
Whether it's IPS or TN panel is irrelevant. Both still retina display.
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At the release, Apple led people to believe that both iPhone4 and iPod touch4g came with the same retina displays. There should have been a more message stating that the screens are different.
 
I compared my iPhone 4S and my mate's iPod Touch 4G today and I couldn't tell much difference. The iPhone's screen was a bit crisper and with a slightly wider viewing angle, but that might just be because the iPhone's screen setting was much brighter.
 
BlizzardBolt said:
At the release, Apple led people to believe that both iPhone4 and iPod touch4g came with the same retina displays. There should have been a more message stating that the screens are different.
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Edit: typing from phone, so I seem a lot meaner in text than I intend:(


They have the same clarity, do they not? I had an iPod touch 4g well before I had an iPhone 4S, and both sitting side by side, not much difference. IPS gives ever so deeper black levels, and wider viewing angles (mostly vs one side), however the crisp text and detail in the GUI is undeniable. I still have an old iPod touch 1g (broken headphone jack), and the first thing I notice is the pixelation. After that I notice how slow it is, even under stock 3.1.3.
 
wrinkster22 said:
No I understand that apple makes huge profit margins on all there products.
I was just saying that the reason the iPhone costs so much more is due to
1) R&D
2) legal/paying developers/etc
3) also phones are generally subsidized
Click to expand...

Correct. Profit is #1 for all businesses, but you also have to look at R&D and licensing (royalties). Apple probably spends $1bn on R&D every year. So you can't only look at the part cost/manufacturing cost.
 
iSayuSay said:
Both still retina display.
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The iPod touch is washed out compared to a iPhone 4

Engadget even made a comparison
70d29e49a70e3592f9fa3d1df4639f29.png
 
B777Forevar said:
The iPod touch is washed out compared to a iPhone 4

Engadget even made a comparison
Image
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But again, both have 960x640 resolution on 3.5" display. So, both have 326ppi, and that's why they're said using "retina display"

Retina is about > 300ppi display. Contrast ratio, viewing angle, image quality and black level are irrelevant. If a monochrome lcd can have 300ppi, they'd call it retina display. It's just the fancy Apple way of naming high resolution.
 
surma884 said:
Correct. Profit is #1 for all businesses, but you also have to look at R&D and licensing (royalties). Apple probably spends $1bn on R&D every year. So you can't only look at the part cost/manufacturing cost.
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As pointed out in Post #53 above, R&D and licensing isn't enough to account for the difference.

People get overwhelmed by the use of "billions", but big numbers divide just as easily as small numbers :)

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Reportedly 70% of Apple's revenue comes from iOS devices. So just for fun, let's allocate 70% of Apple's R&D to them as well for 2011. Does that sound fair?

70% of $2.4 billion total R&D = $1.68 billion R&D for iOS.

$1.68 billion R&D / 160 million iOS devices sold = ~ $10 per device R&D cost.
 
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