iPhone 3G's final build price: just $174.33

[AppleInsider]

In a teardown done with production hardware, research firm iSuppli now says a base iPhone 3G costs just $174.33 in pure manufacturing costs, or less than what it took to build the less capable original.

The conclusion is almost exactly identical to pre-release estimates and gives Apple a $53 savings over the original despite the inclusion of chipsets for 3G data and GPS.

And while the bill of materials doesn't include the price of shipping the phone, selling it, or creating the software that runs it, the inexpensive design is said by iSuppli to be a deliberate move by Apple to fulfill its short-term goal of establishing as much marketshare as it can early on into iPhone's history.

"iSuppli believes Apple aimed for a more cost-effective design for the 3G iPhone compared to the 2G, in order to lower the retail price," says principal analyst Andrew Rassweller, "which will allow the company to seed adoption and to capture maximum market share now—while the company still has buzz and a perceived differentiation relative to its competitors."

In addition to keeping many of the same parts, including the Samsung processor, Apple saves money by redesigning the internal layout. Rather than two tightly connected circuit boards, iPhone 3G uses a single but more durable board. The battery is also no longer soldered to the device, making it easier for technicians to replace the battery.

The estimated bill of materials for iPhone 3G..

Where Apple has changed parts is also consciously done to expand the compatibility of the phone with non-US networks as much as possible, iSuppli adds: the particular Infineon chipset supports WCDMA phone networks (used in Japan and Korea) and therefore works in areas where the first iPhone would be incompatible.

With roughly $50 in licenses for patents and other intellectual property factored into the price and an assumed unsubsidized cost of $499 for an 8GB model of the celllphone, Apple is thought to be getting as much as $300 in subsidies from AT&T for each customer who buys at the much-publicized $199 price, or enough for a substantial 55 percent profit margin before accounting for marketing and software.

[ View this article at AppleInsider.com ]

[merdhead]

Originally Posted by 754T

Does the WCDMA mean it will run on Verizon's network?

no...

[solipsism]

Originally Posted by AppleInsider

With roughly $50 in licenses for patents and other intellectual property factored into the price and an assumed unsubsidized cost of $499 for an 8GB model of the celllphone, Apple is thought to be getting as much as $300 in subsidies from AT&T for each customer who buys at the much-publicized $199 price, or enough for a substantial 55 percent profit margin before accounting for marketing and software.

So AT&T is assumed to be getting $100 (or about 17%) off the full retail price? That sounds like a reasonable assumption to me. Though I doubt that Apple is making 55% on each device.

Originally Posted by 754T

Does the WCDMA mean it will run on Verizon's network?

To work with Verizon or Sprint it would need CDMA/CDMA200. W-CDMA is very different, though the CDMA initialism does have the same words associated with them the interface is completely different.

• http://en.wikipedia.org/wiki/CDMA2000
• http://en.wikipedia.org/wiki/WCDMA

[SpamSandwich]

Stop the presses! Moore's Law continues, unabated! Shock!

[JeffDM]

These component prices are completely unverifiable, making an effort to price them down to the penny is a pretty pointless one.

[stompy]

Originally Posted by JeffDM

These component prices are completely unverifiable, making an effort to price them down to the penny is a pretty pointless one.

Not as pointless as the first iSuppli report.... before they even had a 3G iPhone to crack open.

But on the positive side, look how good that turned out: we now know it was only $1.33 off!

[superrcat]

Originally Posted by AppleInsider

"...before accounting for marketing and software."

Which is probably the most costly for the company. Those two factors, not including setting up the infrastructure for the App Store and MobileMe would greatly affect any substantial profits you are trying to insinuate that Apple is apparently making from the new product.

[Celemourn]

Originally Posted by superrcat

Which is probably the most costly for the company. Those two factors, not including setting up the infrastructure for the App Store and MobileMe would greatly affect any substantial profits you are trying to insinuate that Apple is apparently making from the new product.

MobileMe is it's own product, and therefore the development costs probably should not be included in the iPhone tally. The App Store is likely to fund itself longterm, and may even have gotten some funding through the venture capitalist guys Apple's working with. At any rate, we'd be talking about a small group of programmers and a tie or two. That's not really that big of an investment when you compare that with $300 * 1 million units from the first weekend. I'm always skeptical when people claim software development as a large cost for hardware devices. For the marketing, who knows what they're spending on TV spots? Would that be a big chunk? I have no idea.

[chromos]

Originally Posted by superrcat

Which is probably the most costly for the company. Those two factors, not including setting up the infrastructure for the App Store and MobileMe would greatly affect any substantial profits you are trying to insinuate that Apple is apparently making from the new product.

Don't forget the cost of servicing those customers, both in Genius Bar staffing and phone centers...

[chromos]

Originally Posted by Celemourn

I'm always skeptical when people claim software development as a large cost for hardware devices.

I don't understand your terminology here. What would the iPhone (or any modern electronic gadgetry) be without the software? It's not a "hardware device", it's a device. I would argue that it's the software that really differentiates the iPhone from the competition. The iPhone doesn't stand out from its peers based on hardware features, it's the sheer usability of the (software) features that make it stand out from the pack. (Really, ditto for the Mac).

[kresh]

How in the world can iSuppli determine the final build cost when two of the components listed can not be identified. The "display" and the "touch screen" are both unidentified and thus impossible to determine Apple's actual cost.

I could understand if there all the manufacturers of these components charged the exact prices, but that is impossible.

The other issue I have with these cost build-outs is that they rely on published pricing. Apple does not buy anything based on published price lists, everything they buy is at a negotiated quantity contract price.

I spent 20 years as a manufacturer's representative. We had smaller customers that purchased off of dealer and distributor prices lists, and then there were the major customers where I had to negotiate quantity contract pricing. Every single time that I have been involved in price negotiations, both parties sign agreements that pricing will not be divulged to 3rd parties.

So based on unknown component vendors and unknown pricing terms I can't help but think of what my professor used to claim about assumptions like we have been presented with. This is a "Scientific Wild Arsed Guess", SWAG, if I have ever seen one.

[3goldens]

who cares, I just wish i worked the way they aid it would, so far I am not impressed!

[RealityCheck]

This is rather silly, since it does not include Research and Development costs, advertising, overhead, etc.

How much were the iPhone engineers paid?
How much did it cost to keep the electricity flowing while they worked?
What about health benefits for them, their wives and kids?
What about advertising costs?
etc, etc.

Not very useful to consider only component costs.

[JeffDM]

Originally Posted by chromos

I don't understand your terminology here. What would the iPhone (or any modern electronic gadgetry) be without the software? It's not a "hardware device", it's a device. I would argue that it's the software that really differentiates the iPhone from the competition. The iPhone doesn't stand out from its peers based on hardware features, it's the sheer usability of the (software) features that make it stand out from the pack. (Really, ditto for the Mac).

These estimates only cover the per-unit build costs. Software costs are almost all up-front, once the software is ready, the replication cost of software is negligible.

[JeffDM]

Originally Posted by stompy

Not as pointless as the first iSuppli report.... before they even had a 3G iPhone to crack open.

But on the positive side, look how good that turned out: we now know it was only $1.33 off!

I tried to come up with a witty way to say that. That was quite a convenient. There's no way to know if they were close or just fudged the numbers to make it look like they were close.

[vinney57]

Apple's target margin is ALWAYS 25%. They'll take a lower margin on product introduction and then the engineers do their stuff to reduce costs for the second iteration. Fan-boi status admittred, since the 'Second Coming of Steve' Apple's metrics have been fucking exemplary. The screw-up on the iPhone/Mobile Me launch (which will soon all be forgotten of course) is an amusing reminder that. my God they are human after all.

These iSuppli reports are just self-serving nonsense.

[RealityCheck]

Originally Posted by JeffDM

These estimates only cover the per-unit build costs. Software costs are almost all up-front, once the software is ready, the replication cost of software is negligible.

Really? What were the software costs? Any why are they upfront?

Apple has to keep paying all the engineers and keep paying the bills and keep running the Apple stores all the time. Those are not "upfront" costs. They are ongoing costs.

[wbrasington]

Sorry but I just have to make a comment in this thread even though it doesn't apply to the topic.

While reading through this thread, the advert at the bottom said this:

<<New BlackBerry® Device
Every BlackBerry Smartphone Has A Full QWERTY Keyboard. Available Now>>

This is too funny on a couple of different levels.

1) This is AppleInsider where Rimm is spending marketing dollars. Maybe they should check and see if they can advertise on the Apple site or in iTunes!

2) Not only are they paying to advert here, it's actually on an iPhone thread. duh... double whammie.... not the most likely place to make converts.

3) They are pointing out that they think a QWERTY keyboard on a phone is..... a good thing? At first I thought this was a joke....

4) Isn't Rimm going to have to change this add because they are coming out with a new touch phone? (meaning "every Blackberry Smartphone won't have a qwerty keyboard anymore, or will it have a qwerty and a touch screen?)

Sorry to bother y'all.
I know the ads on some of these sites are randomly fed but was just funny to see a blackberry add bragging about a qwerty keyboard in an iPhone thread on Appleinsider.
Boy, those Canadians are a riot......

[JeffDM]

Originally Posted by wbrasington

3) They are pointing out that they think a QWERTY keyboard on a phone is..... a good thing? At first I thought this was a joke....

Just as a physical keyboard isn't for everyone, a virtual keyboard isn't for everyone either.

If the ads are keyword-context sensitive, then I can see how that ad can show here, because that brand and its products was mentioned in this thread.

[Lafe]

Originally Posted by AppleInsider

"iSuppli believes Apple aimed for a more cost-effective design for the 3G iPhone compared to the 2G, in order to lower the retail price," says principal analyst Andrew Rassweller . . .

Why do people keep calling the original iPhone "2G"? It's not 2nd Generation. It was a 2.75G device, right? Does this analyst really know much about the industry, then?