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IPhone 3G: Build It For $173, Sell It For $500 (or More)

iSuppli, which has become the unofficial authority of electronics teardowns in recent years, believes that Apple will spend about $173 on hardware and production of the iPhone 3G. That is above the $100 teardown estimate of Portelligent, but below the $199 MSRP of the device and well below the estimated $500 - $525 that AT&T is believed to be paying Apple for the phone.
And, the iPhone 3G is cheaper to produce than the first-gen phone: "At a hardware BOM and manufacturing cost of $173, the new iPhone is significantly less expensive to produce than the first-generation product, despite major improvements in the product’s functionality and unique usability, due to the addition of 3G communications," said Jagdish Rebello, director and principal analyst for iSuppli. "The original 8 GB iPhone carried a cost of $226 after component price reductions, giving the new product a 23% hardware cost reduction due to component price declines."

Commenting on Apple’s stronger focused of hardware profitability in exchange for service revenue sharing Rebello said that "hardware is vital to Apple profits, valuation and revenue in the consumer-electronics and wireless communications realms. In fact, two-thirds of Apple’s revenue from the iPod still is derived from hardware, while only one third is from the iTunes service and accessories. The second-generation iPhone is no exception."

Depending on which numbers you look at, the first-gen iPhone carried a 45-55% margin for Apple. The 3G model will trump these numbers substantially, if iSuppli’s BOM is correct. At the very least, the phone will bring in a 65% margin, if AT&T pays Apple $500 per device. On the high-end, AT&T could be paying up to $625, if Apple also sells the service contract: In this case, Apple’s margin could be a staggering 72%. These numbers are likely to increase as Apple decreases the component cost over time. iSuppli believes that the component cost could drop to $148 in 2009 and to $126 in 2012, if the 3G iPhone design is unchanged (which is rather unlikely though).

According to the market research firm, Apple invests about $22.80 in 8 GB of flash memory, $20 in the touch screen, $20 in the display, $13.50 in the application processor, $5 in 1 Gb SDRAM, $15 in the HSDPA chip, $7 in the camera module, $4 in the WLAN chipset, $4 in the battery and $3.60 in the GPS chip. The total bill of materials is estimated at $164 and manufacturing of the device at $9.

  • yeah.. and some morons actually buy it at that msrp
  • Darkk
    Apple been known to sell stuff at high prices and that is their way of doing business. So it's up to the consumer to make wise purchasing decisions based on what they want or the needs. Most of them are "wowed" by it and pay whatever it cost without thinking things through. I guess Apple built their business based on impulse buying.

  • bachok83
    Please dont forget. What about intellectual properties' fee?

    Say, if u have all the chips for all the price listed above, who will integrate them?

    Putting things (im not talking about manufacturing cost here) together doesnt cost that much, i know. However, the software+hardware integration is unbeatable at this point.

    U can say, Nokia or Samsung can deliver as much features for bla bla price. The fact of the matter, they dont do software, period.

    Why do u think ppl love iPod so much? Why didnt Sony MiniDisc (with it's stupid SonicStage software) takes off? Why didnt Zune with it's overcomplicated media player takes off?

    Hint: Software and hardware integration.
  • pilotman28
    Do people then think research and development $$$ grows on trees? Instead of looking at the price of the hardware you have to look at TOC or Total Cost of Ownership. As a company you can't sell that intangible item however what you can do is roll it into the price of the product you produce to have the customer pay a portion of that.

    Marketing departments don't produce a product which brings in revenue, the financial department doesn't produce a product which brings in revenue, the production department does! So in making the product you have to roll everything, ALL expenses into your end-user tangible products and make your money there. If a company didn't do this then all would operate at a loss and our economy would be non-existent.

    I personally will not be buying an iPhone as I'm one person who can't stand to have fingerprints all over my screen. Instead I'm hoping to replace my Nokia E65 with the upgraded E66. A Nokia slider with built in GPS, 3.2MP camera w/flash, and a long battery life. Unfortunately it's retailing about $500 right now since no carrier is going to be subsidizing it but it'll be mine soon.