iPhone manufacturing cost estimated at $245.83...maybe
Steve Ballmer might go on about the iPhone being heavily subsidized, but today's Mobile Magazine reveals that the iPhone might be cheaper to build than you think. According to their estimates, the 4GB iPhone costs $245.83 to manufacture, about half of the five hundred dollar asking price. Add another $35 to step up to 8GB onboard. "Of course," they add, "These figures don't include R&D, advertising, and Steve Jobs' expense account." If right, this dramatically undercuts the notion that Cingular is massively subsidizing the iPhone in order to bring the price into line with consumer expectations. It also brings the possibility of a phone-less (albeit pretty expensive) G6 iPod into greater likelihood.
I'm not big on equipment and manufacturing costing. For all I know, they are pulling these numbers out of thin air (John Gruber at Daring Fireball seems to think so, linking to Apple Insider), but it's certainly an interesting place to continue discussing the "subsidies" controversy.
Reader Comments (Page 1 of 2)
MikeCP said 3:14PM on 1-19-2007
2 1/2 years of R & D might come out to a substantial amount of money spent. Someone's gotta pay the bills.
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Fred said 3:15PM on 1-19-2007
Meh. Who cares? I'm still getting one.
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Brian said 3:58PM on 1-19-2007
I am looking forward to this release as any die hard Apple person. The cost of the device is really not that bad. Where we are going to get it is in the service per month charges.
Now most companies charge and arm and a leg for only half of the services. I am guessing that Cingular/AT&T are going to hit us with around $100 per month in service charges.
I really think that is the bigger issue.
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Thomas said 4:33PM on 1-19-2007
Where does the $7.00 for OS X come from?
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Andrew said 4:35PM on 1-19-2007
"Now most companies charge and arm and a leg for only half of the services. I am guessing that Cingular/AT&T are going to hit us with around $100 per month in service charges."
Are these various services *required* when someone purchases a smartphone? Or could I buy a Treo with just a voice plan? I don't really plan on purchasing a data package unless I'm forced to, really the only added service I want will buy a nice text message package (I'm going to miss Sprint's unlimited text package).
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David Chartier said 5:05PM on 1-19-2007
I've always thought the 'carrier subsidies' thing was BS just to maintain strict pricing on phones. Either way, why does it matter? As I understand it, the electronics industry, cell phones aside, has historically had one of the smaller markup and profit margins out there. How about we look at food or the automotive industries to see how big Mr. Jobs' expense account really is.
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Mike S said 6:09PM on 1-19-2007
how do they know how much it costs?
Until we get more information, everything is no more then pure speculation
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Sam said 6:14PM on 1-19-2007
There is so much wrong with these articles that have been circulating that it's not even funny. Let me start from the top:
1. Companies are in business because they make money. They have to sell products at a margin to make money - and it has to be bigger than you think. For example: Overstock.com sells at an average 15% margin (that's MARGIN not MARKUP, meaning 15% of the costumers cost goes to overstock). They have been profitable one quarter. once. ever. It's easy to see there is more at work here.
2. Operational costs, marketing, and R&D easily double the cost of each phone. The only one that works less into each phone as time goes by is r&d. They still market it, and they still need to operate. Even shipping needs to be factored in from China - and again, it's probably not as cheap as you think.
3. I don't know if Cingular is subsidizing the phone, but Apple's internal margin has nothing to do with that. Apple could be selling the iPhone to Cingular from $1000 and Cingular could still be subsidizing it. I'll say it again: Apple's internal margin on the iPhone has NOTHING to do with whether or not Cingular is subsidizing the phone.
4. This is all speculation. We don't know what the parts in the iPhone are, nor do we know what Apple is buying them for. We don;t know if they make the touch screen or wacom, we don't know who makes the processor (samsung? IBM? Intel?) and rumors are still flying in all directions.
5. Forget R&D, let's talk about software programming. Software can make or break a phone, and it's quite complex. Software alone for the iPhone could easily retail for $100 itself if we lived in a world where it was sold separately.
6. Cost of parts and estimated cost of manufacturing have very little to do with setting a retail price. Go try to build a Honda Civic from parts - it will cost you ~$80,000. So obviously retail price of a product has little to do with things. The Honda Civic goes the other way, and you can't buy the parts to build an iPhone.
7. Apple is a public company. You can look up their net and operating profit margins in their financial reports. They operate at anywhere between a ~10%-20% margin, and they net between 10%-15%. Now I would guess if you did this same kind of "cost of parts" analysis on a macbook or something we would find roughly the same results - it may cost about half to manufacture the devices, but obviously by looking at their operating margins, we can see there is much more at play. I would venture to guess Apple is selling the iPhone at the same or close to the margin of any of their other products, probably even LESS.
8. Even if they were making a 50% margin on the iPhone, people would still buy it. Apple has a responsibility to be profitable to investors. they do this by making profit. Steve Jobs isn't laughing all the way to the bank - despite what you may think this is a really risky move for Apple. If this thing flops it could be the 90's all over again for them. If you really believe they are making a 50% net profit on this thing though, then it's time to buy Apple stock, because they only have to sell half their units to break even. Unfortunately that's fantasy. Although, it's probably still a good idea to buy Apple stock.
9. This is fictional sensationalist journalism at best. No basis in reality or facts, just someone trying to get a few hits and build some links. I could just as easily claim Apple is getting it for free, back it up with just as many "facts" and people would slobber all over it if I made the explanation so complex that nobody could follow along.
Whoever wrote this article, and whoever believes it, has no idea how business works, how supply chains function, and how product are priced and sold. Does anyone really believe that cost of parts has anything to do with net cost of products? It baffles my mind that anyone pays this article any attention, in fact I'm going to stop right now.
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Sam said 6:16PM on 1-19-2007
One more thing worth repeating ... Apple is in business to make money, not give away phones at cost. I mean, maybe one day Unicef will get into the high end phone market, but for right now Apple is the company to look too.
Joe Dirt fans? Anyone?
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Howard said 7:47PM on 1-19-2007
Me wants a phone-less iPhone!
I'd pay $299, maybe $349 for a 40GB version with wireless internet, email, web, etc. and all the other goodies the iPhone has, minus the phone of course.
Would love to see it before the iPhone ships, but not likely!
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Nathan said 7:54PM on 1-19-2007
I want to add that manufacturing costs don't determine final cost.
please read this, which I found on the 37signals blog
"Legend has it that Pablo Picasso was sketching in the park when a bold woman approached him.
“It’s you — Picasso, the great artist! Oh, you must sketch my portrait! I insist.”
So Picasso agreed to sketch her. After studying her for a moment, he used a single pencil stroke to create her portrait. He handed the women his work of art.
“It’s perfect!” she gushed. “You managed to capture my essence with one stroke, in one moment. Thank you! How much do I owe you?”
“Five thousand dollars,” the artist replied.
“B-b-but, what?” the woman sputtered. “How could you want so much money for this picture? It only took you a second to draw it!”
To which Picasso responded, “Madame, it took me my entire life."
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Matthew said 8:25PM on 1-19-2007
"For all I know, they are pulling these numbers out of thin air " and #7,
If you read the iSuppli analysis, they clearly state that the estimates are based on the tear-down of many other devices sharing the same or similar components. Not thin air stuff:
"About iSuppli’s preliminary functional BoM estimate
iSuppli developed its preliminary functional BoM estimate based on an analysis of the capacity and features of the Apple iPhone, combined with information from materials from Apple, company sources and third-party publications. To further help determine the content of the iPhone, iSuppli leveraged the extensive knowledge of its Teardown Analysis service, which has dissected hundreds of pieces of electronic equipment, including music-enabled mobile phones, various models of the iPod and other Apple products"
http://www.trafalgar2.com/content/view/1634/111/
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Nicolas Dore said 9:52PM on 1-19-2007
While I do not mind a 50% margin (capitalist system, they price it a price they think people will buy it...), I am a bit confused: Cingular/Apple will be selling it for 500$ or 600$ attached to a subscription plan, but the actual *price* as payed to Apple would be much more, 100$s more. That would make for an even bigger margin...
Good days for Apple stockholders.
And another note: The Cingular deal is reminding me more and more of the iPod's "Mac only" days, where Apple worked on polishing it and iTunes before making it available to the Windows-using population.
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ChrisM70 said 9:57PM on 1-19-2007
Please, Please, PLEASE make me a touch-screen iPod with 60-80GB Hard Drive!
I really want to use the multi-touch™ technology and I don't need a phone or a "breakthrough internet device" - I am into the MUSIC, and I don't want to wait any longer! I am begging you Mr. Jobs - make me an iPod!
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Jay Leonard said 11:04PM on 1-19-2007
Erica,
While I like you have no Idea what the actual cost to manufacture Is I can tell you that in addition to the physical cost to manufacture they are going to assign an amount of their marketing budget, r&d as well as corp overhead ( you gotta pay the lawyers).
Secondly as to Sale price we do not know how much Cingular is paying Apple but we know it is enough that Apple is forgoing other significant sales channels for a very long time by tying themsels to Cingular. It is fair to assume that Cingular has made a signifiant commitment to Apple to support iPhone sales. The support will come in several forms Cash payments on a per unit basis will be part of it but I am sure they have minimum marketing expenditures as well. (or thinking out of the box Apple may require network enhancements)
It is safe to say with or without the list of parts that the gross margin on the iPhone will be substantial. Apple will not sacrifice gross margin and dilute their otherwise stellar earnings.
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Nick Young said 4:04AM on 1-20-2007
To me the initial cost of the iPhone is no big deal. I can always save up the money and purchase the phone when I have the money. What will ulimatly be the deciding factor for me will be the monthly cost. If I'm going to have to pay $100 a month then thats what will be hurting my wallet.
--Nick Young
http://keynote2keynote.blogspot.com
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Theo said 6:52AM on 1-20-2007
Best Mac video I've seen in years
http://www.youtube.com/watch?v=gHDMAy8qAcc
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Darren said 7:10AM on 1-20-2007
If the phone is expensive as Cingular are not subsidizing then they probably won't be forcing monthly costs as they have not to recoup. If they knock of the Moto Q for $99 then they obviously want $100 a month to pay the phone off.
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bobics said 3:27PM on 1-20-2007
And software costs pennies to "manufacture" onto a CD.
WHO CARES.
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jon said 7:32PM on 1-20-2007
I think the subsidy he was referring to was for consumers, not Apple.
i.e. the iPhone would cost $700-$800 for a subscriber who's not extending their contract or ready for an "upgrade"
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