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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.