As a follow up on our earlier post about Apple’s $300 million iPhone weekend - January estimates guessed that Apple was making 20-50% margins on the iPhone (probably closer to 20%).
New estimates, based on a tear down of a unit by Austin-based Portelligent, put the cost of components at a mere $220. This does not include the cost of final assembly.
The most expensive part is the touch screen, (probably) produced by a German company called Balda. The estimated cost of the screen is around $60. Samsung produced the main microprocessor chip and the NAND-type flash memory.
The production cost of the much less popular 4 GB version of the iPhone is $200.
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Well done Apple! - they’ve taken a multi-year R&D effort, all those heavy negotiations with boring phone companies, and a $105m stock risk (which of course is just for last weekend’s sales). And of course, they’ve probably had to forward buy vast amounts of Flash, screens and processors to get these prices.
Let’s all Applaud the effort and the guts all that takes.
Please please don’t say “we’re being ripped off”.
Well, it’s a bit weird, as the rule of thumb with cellphones over the years is that the price you paid with a new contract was LESS than the cost of the phone, as it would be subsidized by the service contract.
Hmm.
…of course, the price could also be to reduce demand, so they could more easily meet it with production numbers…
Your headline is wrong based on the facts in **your article**.
The correct headline would be “That $599 iPhone has $220 in parts” not “That $599 iPhone Costs $220 To Make”. The teardown firm’s parts estimate specifically did not include the assembly cost.
Although the iPhone may have a huge mark up that is no excuse for a factually incorrect headline.
This calculation is too simplistic. You need to add a carrier incentive of $300 that AT&T pays Apple (as well as to most other manufacturers) for every new subscriber (why else would Apple require you to sign up for two years?), as well as an additional $10-$15 that Apple receives from AT&T every month in exchange for having turned every of their users to a data subscriber, for which AT&T makes $20 per month.
The main reason AT&T won the iPhone contract is not because of the supposedly low battery requirement of its network chip, but because it provided the best subscriber lifetime revenue to Apple.
The iPhone franchise is a lot more profitable. Apple makes a profit of $800-$1300 per iPhone over a subscriber’s lifetime, until he buys another one, or dies.
Wow, wish I had bought more stock! That and with the 500k units sold over the weekend. Way to go Apple.
Personally, I am holding off until the 3G phones with GPS are on sale.
We can estimate the build price as:
# of components, approx 250 (including discretes) @ $0.0075/component = $1.88
Waste Fee (typically 4% of the parts cost) = $8.80
Factory Cost (billed at around $6/hour in China). Estimate that the phone takes 20 minutes to make = $2.00
So- the total manufacturing cost is roughly $12.68.
Add about $0.50 for shipping by sea and $1 for distribution in the US and you have a cost of getting the parts manufactured and the product into the store of around $14.18.
(all above are educated guesses)
oh come on! that’s about as accurate as saying that the time a software project takes to develop is the total amount of time required to type the code.
yes, sure apple might make a decent profit on a ‘per phone cost to manufacture’ basis but there are many many many other costs in developing a new product - especially one on such a large scale *and* in a new line of business.
Michael, your numbers are way off.
You can’t forget all millions in ads spent and free phones given to employees. This should be fairly obvious when the knockoffs are selling for $350.
I would never buy this for more than 300. That’s my limit on cell phones seeing as how they get outdated so quickly. In fact…I usually get the freebies from promotions whenever I renew.
Let’s not forget supply chain management, cost of inventory, transport cost, development costs, engineering costs, etc.
To say the “cost” is X is far too oversimplified.
Well said Andrew.
I am getting fed up with all the negativity regarding the iPhone. The fact is, Apple produced a bit of technology that is going to fuel hand-held computing for the next ten years. Yes, they are trying to make a buck off of it, but what do you expect them to do? They are a company!
We should be applauding Apple for doing what every other company wish they had enough guts to do.
One last point. The parts were $220. Know, factor in the multiple years of R&D; the massive ad-campaign; and the assembly, packaging and distribution; and I would guess that they are only making around a $100 per unit.
True.
Yet somehow we don’t even bat our eyelids filling up our $6 venti extra-hot double-whipped cream caramel macchiato lattes every morning. That’s capitalism and market dynamics at it’s best.
Although I was not one of those iManiacs to stand in line for umpteen hours and wait for the iPhone to reveal itself. I got mine on Sat. I got the 4GB version [$499] but the question is would it have sustained more. What if the phone were $299 or $799 or …..? Would Apple have seen a different outcome in the adoption rates???
In the short 20 hour period that I’ve owned it…. I must say….I have been blown away.
Go Steve Jobs!
Ah yes Apple is ripping us off!
But what about Adobe? Just think about the component costs of Photoshop! It’s a box, a manual and some DVDs. I’m sure those components don’t even cost $5! And what do they charge? $1000? OUTRAGEOUS!
Pfff… lamest article I have read all day (and I read a lot)
Well if that shocks you then you should check out the cost of tennis shoes.
Is this really what Web 2.0 life comes down to? This and that miss pees site or whatever that let’s you find public toilets (functionality that is hopefully coming to iPhone really soon)? Are there really no other companies/stories of interest other than that of a phone? If you prick us, do we not bleed? I’m bleeding…
Nothing in the world costs more than $20!
Except for the ADS.
He doesn’t say anything about Apple ripping people off. The article is just trying to make some guesses as to Apple’s profit margin, so we can all speculate as to how much money they’re making per unit.
I love everything Apple.
While i do think that the Iphone is overpriced, the cost to make it doesn’t really surprise me. The technologies used to create the device are nothing new.
Also, Apple cant take a hit with hardware. Unlike console systems, the Iphone doesnt have sales of games to make up for the loss.
I would of expected the Iphone to cost less for the consumer, and cost less to make. Sadly, neither is true.
Is there some level of revshare between ATT and Apple on the monthly plans (or the data plans at least)? If so, that would definitely increase their profitability for Apple considerably.
Holy crap, 4 gigs of flash memory for $20? I wish I had the bulk-buying heft that Apple does.
Jesus Christ, all of these posts above make me want to puke.
These figures are *way off*. There are a number of costs that go into such a device, and components are just one of them. There is manufacturing, sourcing, distribution and retail.
As an example, a 30GB iPod costs $225 by the time it gets into a store. The raw component cost is around $120 (the hard drive is around $75) - but manufacturing and logistics adds a lot to the costs (afterall you have over 200 suppliers, and somebody needs to put the thing together). You also need to get them distributed and onto shelves, and then there are retail costs. These figures from BusinessWeek are saying that the iPhone is cheaper than a 30GB iPod.
BusinessWeek are putting forward a very simplified and flawed view of how an electronic device is constructed and sold.
My take on the iPhone, based on the components I saw over the weekend and some of the other information available, is that the total cost is more likely to be in the $400-$450 range, possibly more. The iPhone is super-complex and super-compact, and has many more components than what an iPod does, as well as a very expensive battery, screen and case.
In terms of how the business deal works - my understanding is that carriers typically pay anywhere from 15-25% of revenue that has been referred. The referral can also include a bounty of up to $200 for any new user switching over to that carrier.
If you take those numbers, then it turns out that Apple are making anywhere from $250 up to around $1000 per iPhone user just from AT&T. There are also the deals with Google which would probably see some revenue too (YouTube, Maps, etc.).
Also taking into account that the retail price was controversial, and not very competitive. If the cost base of an iPhone was any lower, I have no doubt that Apple would have passed these savings onto consumers, it just makes sense. I would not be surprised if Apple are making a loss on each sale and relying on the carrier deal (eg. it is subsidized). Apple would have sought a bespoke deal from AT&T which could have resulted in a higher revenue share, as well as lower pricing for users. In return, AT&T got an exclusive deal (and will probably find it difficult to profit greatly from iPhone users - though they see a big increase in their user numbers).
Because the vast majority of Apple’s revenues will be gathered from AT&T, you can bet your ass that any mention of unlocked iPhones will be viciously hunted down by the Apple legal team. The last thing they want is for 5-10% of iPhones to not be locked into their AT&T deal, thus generating no revenue an in-turn possibly even generating a loss for Apple.
In short, this article is way-off. Much simpler devices (that don’t boot complete operating systems, run GSM and EDGE chips, run WiFi chips, bluetooth, a wicked screen, a great sound processor and a battery that gives it all days of life) are built for the price that businessweek quote for the iPhone.
See this recent NYT article on the economics of the iPod for some pricing details:
http://www.nytimes.com/2007/06.....=permalink
Good god…the Mac fan boys are out in force…..
As Slate magazine nicely put it, would you pay $600 for a DVR that only worked with NBC, or pay $500 for a PC that only worked with Comcast cable?
Hhhmmmm…….
Reports: iPhone sales exceed estimates
well done apple!!!
These iSuppli esque articles make me laugh, regardless of who is the subject.
They do not factor:
R & D
Development costs (Which I presume are astronomical in Apples respect - the UI is incredibly refined)
Marketing
Distribution
Support (a killer)
Training
etc etc
Michael: Stick to blogging and stay away from business analysis. You are lawyer and blogger, not an accountant. If you knew something about business you would know that core competencies should be the focus, and your post is far from your core competencies.
Or $0 to make yourself (assuming you have another phone). My sister made her windows mobile phone into an iphone-clone for free:
http://hackaddict.blogspot.com.....-skin.html
Sicko, I agree, they definitely left out a lot of the costs. I wonder how much apple spent marketing this thing.
why? do you think that the chicken parm’ you like cost $14 to the restaurant?
@wino
Remember that the iPhone is fundamentally a software driven application. So it can be easily upgraded similarly to an ipod. Thus the effective lifetime of the phone would be many times longer than a typical cellphone.
32 Eric, yes you do have a point there. I might have to allow a little leeway for the iphone in that regard. But I think I’ll wait for gen 2
Unless Apple has an Iron Clad Lifetime Exclusive on the Samsung chips and the Screen then look to see copy cats with Windows on Sprint or T-Mobile within the initial 2 year sign up at a much cheaper price point. Not a tommorrow concern for Apple but definite hope for the cost sensitive consumer.
Contract Manufacturing costs are not the whole story, as many have pointed out. It’s a complex mix fielding a CE device, and true, commodity pieces are often subsidized by the carriers (in the wireless business). Now we have a model breaker, where there is margin for the device alone, and there have been other premium phones that have sold separate from plans, and some folks buy expensive unlocked GSM and CDMA phones that their carriers do not sell. They spend up to 500 for a Nokia with 5 MP camera.
Im waiting for the 3G version of the iphone or a sure to be announced competitor, to replace my fairly nice Blackjack HSPDA phone. I switched from Nextel to Cingular, and I have never heard these words so often when I was with Nextel: ‘…what, what did you say, can you repeat that?’ Shoot.
Now, this is the down side to Apple and ATT, the worst sounding network on the planet that has reduced voice bandwidth, increased audio group delay, and just made all conversations less intelligible because they needed to re-allocate flexible bandwidth from voice to data in the channel mux, and ratcheted up the number of voice channels by lowering total voice passband from a fat, good ole analog cell days of 3khz, to a dynamically allocated peak traffic bandwidth of 1.9khz, that sounds muddy, poorly duplexed with lousy side-tone, and crap customer service as a side order.
whew!
Now, to make a phone or any other CE device takes:
the device parts and labor - say 220
support - unknown
returns sunken costs
docs, training, staff programs
regulatory crap (not insignificant)
warranty processing
There is much more to fielding this type of device and Apple is not making 50%, probably not even 20, maybe 20. But margins will get better as time passes.
I want a 3g iPhone NOT on AT&T Cingular. I’ll bet a competitive device is introduced by Samsung, LG, or Nokia, by end of year.
I read in the comments that the original blogger here is a lawyer. Well, to make a nice comparison, what if a lawyer’s bill would consist only of the amount of food, water, and electricity he consumed during the time he worked on your case. OMG a lawyer spends only $3 per working hour, why do I pay him $100 per hour? So let’s forget about the costs for the secretaries, the housing of the company and the lawyer himself, hardware and software, all kinds of support (blumper, electrician, copy machines), access to legal databases, the money the lawyer invested in his law school study, etc. etc.
I ment plumber, what a blunder, bummer
i dunno nic, Openmoko is going on sale next week for $300. and its virtually identical to the iPhone, except its not locked down to a particular software stack or carrier…i doubt theyre selling them at a loss.
You mean after 30 years apple finally built something that *appears* to have some margin behind it?
Bravo, Steve-o…Bravaaaaa…
(Lamest arse post I’ve read in a long time, Arrington. What was your margin when you were billing stupid amounts of money for Web 1.0 IPO’s? I love it when lawyers make stealth complaints about price.)
It’s funny how all the little apple fanboys come out of the woodwork whining like little babies if anyone dare say anything they don’t like with “apple” in the title. Even more interesting is there is nothing negative in the article, it’s just a few factual tidbits and it clearly states the cost is for components only - not assembly. It would seem that some of you have poor reading comprehension skills.
All you g3 bone heads. It is superflous because there is so much ambient wifi. Its amazing walking down the street with it. G3 is not faster than wifi.
Well said Nik Cubrilovic.
When people find something costly they make it a dream to buy that later. iPhone is a dream gadget to people. Dream can’t be $100 and that Apple knows.
Mike, get over it, Apple made it for $220, and turned around and sold it for $499/$599, it’s called profit on your investment. Unless they could take over 50% of the mobile market, the phone would never be sold for anything less than $300. File this under “duh”, it’s how a bar makes $300 on a $75 keg of beer. really, how is this news?
This estimate is just based on parts.
What about advertising cost, cost of man power after manufacturing…
doesn’t it come with atleast a year of warranty?
If people are willing to pay for it, why not sell it for higher price? Its Apple!
Well I guess I will wait until they go on sale before I purchase one.
Congratulations!!!! well I am awaiting Microsoft’s comments on the figures…
Hope the come up with some thing better.
http://www.youtube.com/watch?v=C5oGaZIKYvo
Beyondwww
Gadgets today over future savings. No wonder our country is so far in debt!
http://seminar7.vox.com
yeah I would say this is heavy speculation; and in accurate as to the ”total” cost.
-rbowles
Hey, I have an idea to make a successful company. Let’s develop a really awesome product, spend years doing R&D coming up with great new ideas for lots of new things, spend lots of time making some software to run on this really kick ass phone, and then sell it for only the cost of the parts. Are these people complete idiots?
Cost of software development, R&D, testing, marketing, and other general overhead. Hello!?