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Apple assails iSuppli iPhone 4 part cost estimates

post #1 of 125
Thread Starter 
Apple sniped a shot at the component cost estimates published by iSuppli in its latest conference call report, suggesting that the estimates were not very close to reality.

"Let me begin by suggesting that you dont put a lot of credence in these third-party reports that you see. Its always amazing to me the cost categories and the components that never seem to make it into the reports," chief financial officer Peter Oppenheimer said in response to a question about the cost structure of iPhone 4 in relation to gross margins during the Q3 2010 conference call.

While iSuppli wasn't named specifically, the company is both unique and infamous for making headlines after every Apple product release by announcing a teardown cost estimate, sometimes publishing its guesses well before the product is even available to take apart.

In January 2007, iSuppli published a preliminary report stating that the original 8GB iPhone cost just $280.83 in parts, six months before the phone was even available. After the phone became available, the group released a new estimate saying it cost just $265.83.

While Apple insists that both the iPad and iPhone 4 have a significantly higher cost structure than its previous products, iSuppli recently claimed that iPhone 4 cost just $187.51 in parts (compared to an estimated $179 for the iPhone 3GS) and that the $499 iPad uses only $260 in components.

The iSupply Bill of Materials reports are widely published as fact, and generate lots of interest because they nearly always suggest massive profit margins while providing very little contextual information about how the cost estimates compare to competing vendors' products.

The parts estimates factor in some patent royalty costs and include estimated software development expenses, but do not consider other business costs related to creating, shipping, supporting and marketing the products, resulting in a sensational figure that offers very little real information about anything from profit margins to end-user value.

TechCrunch noted in its coverage of a recent report that "iSuppli is well-known for low-balling these numbers in an effort to convince manufacturers to contact them in order to connect with their preferred suppliers, so grains of salt must be taken."
post #2 of 125
if Apple can;t say something like the price is close to $100 under what they sell the phone its still a rip off, selling 9.5+ million phones at $100 made per phone would mean that any costs of design would be taken care of ove and over... so i still feel that it is outrageously priced (for sales they expect, if those sales were half or maybe even 2/3rds it would make more sense...)

i feel that Apple would make monay of the iphone if they sold it for a penny above the manufacturing cost... (not really, but if it was $25 then it would be at least 10m (ip4 should sell at least this much before thye make a new one) that would be 25 million dollars... not including app's (new costumer,think it was like 25% of ip4 users are new (that or around 75% of 3g/gs users are going to ip4)

i mean Apple is showing the world how much F***ing $ they have on hand, you can argue its not much in terms of costs for keeping a company going, but they keep making record profits... if the lowered the price of the ip4 lets say 25% (using that it costs aprox 300 for cheapest model) ($600 unsubsidized) the price would be $450... that is still a $150 profit margin per phone... if people had to pay $50 up front for the ip4 i bet a lot more people would buy it...

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post #3 of 125
It's no one's business how much a product actually costs to make. It's basic economic theory is that a good or service will sell for "whatever the market will bear", regardless of the cost to make the product... That's a double edged sword. With a product like the iPhone, the public is willing to pay plenty. Some products get the opposite, such as the case in the 1957 Cadillac Eldorado Brougham, which cost $23,000 a copy to build at the time, but sold for around $13,500. They simply thought the demand would be higher and economies of scale would prevail. Unfortunately, it didn't, and they got bit. It's the market that dictates the value of a product, not the component costs.

What's missing is the R&D costs, which, when you're in the business of being innovative like Apple, is an incredible amount of money. Just think that for every iPhone, there are plenty of dud concepts that simply get scrapped along the way. We'll never know the actual cost per unit, but you can bet that the cost of the physical parts aren't all that high, given the intrinsic costs of development of the product. When they hit upon a smash hit, such as the iPhone, they deserve ripe rewards for the gamble they took in innovating such a great product. That's the reality of risk and reward.

I remember when Apple was just about a dead company. Now people are crying because they're so successful. Go figure!
post #4 of 125
What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.
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post #5 of 125
Just think you can pick up rocks, sand and stuff for FREE!!!

Then smelt and refine them yourself and make a smartphone.

OMG, shock, horror!!!

/feigned indignation


Quote:
Originally Posted by DaHarder View Post

What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.
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post #6 of 125
Quote:
Originally Posted by hill60 View Post

Just think you can pick up rocks, sand and stuff for FREE!!!

Then smelt and refine them yourself and make a smartphone.

OMG, shock, horror!!!

/feigned indignation

Nope! But the Chinese do it well, and do it cheap.

Savings from all that foreign manufacturing/outsourcing could be passed on to the consumer... from a more fiscally conscientious organization.
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post #7 of 125
I made this comment before what isupply numbers were most likely complete wrong. I seen their analysis on things I know the real costs and they are always way higher or low, with not real reason. I even seen reports from them for two different products using the exact same part and they had two different costs one higher than actually and the other was lower then actual.

I not sure what they are trying to prove and I am glad to see Apple call them out on it. Their analysis have not clue and add not value.
post #8 of 125
Quote:
Originally Posted by ruel24 View Post

It's no one's business how much a product actually costs to make. It's basic economic theory is that a good or service will sell for "whatever the market will bear", regardless of the cost to make the product... That's a double edged sword. With a product like the iPhone, the public is willing to pay plenty. Some products get the opposite, such as the case in the 1957 Cadillac Eldorado Brougham, which cost $23,000 a copy to build at the time, but sold for around $13,500. They simply thought the demand would be higher and economies of scale would prevail. Unfortunately, it didn't, and they got bit. It's the market that dictates the value of a product, not the component costs.

What's missing is the R&D costs, which, when you're in the business of being innovative like Apple, is an incredible amount of money. Just think that for every iPhone, there are plenty of dud concepts that simply get scrapped along the way. We'll never know the actual cost per unit, but you can bet that the cost of the physical parts aren't all that high, given the intrinsic costs of development of the product. When they hit upon a smash hit, such as the iPhone, they deserve ripe rewards for the gamble they took in innovating such a great product. That's the reality of risk and reward.

I remember when Apple was just about a dead company. Now people are crying because they're so successful. Go figure!


Your correct and I can tell you Apple original rule of thumb was is R&R cost were not paid in the first 3 months of units sales then it probably was not worth making the product since it will probably not be on the market for more than 9 to 12 months.

Yeah everyone forgets to factor in the R&D cost and all the SG&A stuff. they look as costs or what they believe are costs and the selling price and say look at all of what they are making.
post #9 of 125
Weren’t they the ones that did a BOM cost of the “Apple Tablet” weeks before there was any official announcement of a tablet, its name, size, features or specs back in early January?


PS: DaHarder has always posted stupid comments, but to claim the $600 iPad only costs Apple $30 to $60 is phenomenally doltish.
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post #10 of 125
Quote:
Originally Posted by solipsism View Post

Werent they the ones that did a BOM cost of the Apple Tablet weeks before there was any official announcement of a tablet, its name, size, features or specs back in early January?


PS: DaHarder has always posted stupid comments, but to claim the $600 iPad only costs Apple $30 to $60 is phenomenally doltish.

Yep, and my 13" Macbook Pro probably only cost them 60-120 dollars to produce... LOL
post #11 of 125
Quote:
Originally Posted by ruel24 View Post

What's missing is the R&D costs, which, when you're in the business of being innovative like Apple, is an incredible amount of money. Just think that for every iPhone, there are plenty of dud concepts that simply get scrapped along the way. We'll never know the actual cost per unit, but you can bet that the cost of the physical parts aren't all that high, given the intrinsic costs of development of the product. When they hit upon a smash hit, such as the iPhone, they deserve ripe rewards for the gamble they took in innovating such a great product. That's the reality of risk and reward.

Apple writes off R&D costs every quarter in their SG&A. It's a separate line item in their SEC form.
post #12 of 125
Quote:
Originally Posted by nicolbolas View Post

if Apple can;t say something like the price is close to $100 under what they sell the phone its still a rip off, selling 9.5+ million phones at $100 made per phone would mean that any costs of design would be taken care of ove and over... so i still feel that it is outrageously priced (for sales they expect, if those sales were half or maybe even 2/3rds it would make more sense...)

i feel that Apple would make monay of the iphone if they sold it for a penny above the manufacturing cost... (not really, but if it was $25 then it would be at least 10m (ip4 should sell at least this much before thye make a new one) that would be 25 million dollars... not including app's (new costumer,think it was like 25% of ip4 users are new (that or around 75% of 3g/gs users are going to ip4)

i mean Apple is showing the world how much F***ing $ they have on hand, you can argue its not much in terms of costs for keeping a company going, but they keep making record profits... if the lowered the price of the ip4 lets say 25% (using that it costs aprox 300 for cheapest model) ($600 unsubsidized) the price would be $450... that is still a $150 profit margin per phone... if people had to pay $50 up front for the ip4 i bet a lot more people would buy it...

How old are you?

Go design, test, register, license and manufacture a product within the US. Then please tell everyone the total cost to market for your design.
post #13 of 125
Quote:
Originally Posted by DaHarder;

What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.

That must be why we see all these other tablets for 50 bucks, right?
post #14 of 125
Quote:
Originally Posted by RKRick View Post

Yep, and my 13" Macbook Pro probably only cost them 60-120 dollars to produce... LOL



Now try that nonsense in relation to an iPod Touch, Classic, Shuffle or more specifically an iPhone 3GS (which is still being sold/subsidized), and you'll be well within the ballpark of my estimates.

Otherwise, I really don't care...
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post #15 of 125
Quote:
Originally Posted by Tofino View Post

That must be why we see all these other tablets for 50 bucks, right?

No, but other device manufacturers do seem more focused on proving a bit of 'value' in their wares than Apple.

But, as long as Apple can sell (essentially the same parts as other companies) at exorbitant prices, all's well within the iFanDom.
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post #16 of 125
Quote:
Originally Posted by mdriftmeyer View Post

How old are you?

Go design, test, register, license and manufacture a product within the US. Then please tell everyone the total cost to market for your design.

Don't give him a hard time. He is right. Apple should adjust its margins to the same level as Microsoft. Microsoft sold XP for 10 years at the same price. That is the proper way to take care of our customer. Office too has stayed a bargain for decades.
post #17 of 125
Quote:
Originally Posted by DaHarder View Post

What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.

Thanks for providing those number. It is impossible to get this 10 to 20 times figure from Apple. But can you possibly be more exact? 10 to 20 times a kind of a wide range.
post #18 of 125
Quote:
Originally Posted by peter02l View Post

Don't give him a hard time. He is right. Apple should adjust its margins to the same level as Microsoft. Microsoft sold XP for 10 years at the same price. That is the proper way to take care of our customer. Office too has stayed a bargain for decades.

Probably not given that Apple (yet again) posted record profits... They'd do well to keep the same game-plan. ;-)
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post #19 of 125
Quote:
Originally Posted by peter02l View Post

Thanks for providing those number. It is impossible to get this 10 to 20 times figure from Apple. But can you possibly be more exact? 10 to 20 times a kind of a wide range.

It was merely a rough estimate (like 99.9% of every figure posted in here), and should be taken as such.
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post #20 of 125
Quote:
Originally Posted by DaHarder View Post

What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.

Have no fear, like clockwork, DaHarder is here. Not just on AI, I've seen him on most tech blogs where any Apple (or anti-Apple) article is.

10 to 20 times, let's see the math now shall we? How do you know how much it costs?
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post #21 of 125
Quote:
Originally Posted by nicolbolas View Post

if Apple can;t say something like the price is close to $100 under what they sell the phone its still a rip off, selling 9.5+ million phones at $100 made per phone would mean that any costs of design would be taken care of ove and over... so i still feel that it is outrageously priced (for sales they expect, if those sales were half or maybe even 2/3rds it would make more sense...)

i feel that Apple would make monay of the iphone if they sold it for a penny above the manufacturing cost... (not really, but if it was $25 then it would be at least 10m (ip4 should sell at least this much before thye make a new one) that would be 25 million dollars... not including app's (new costumer,think it was like 25% of ip4 users are new (that or around 75% of 3g/gs users are going to ip4)

i mean Apple is showing the world how much F***ing $ they have on hand, you can argue its not much in terms of costs for keeping a company going, but they keep making record profits... if the lowered the price of the ip4 lets say 25% (using that it costs aprox 300 for cheapest model) ($600 unsubsidized) the price would be $450... that is still a $150 profit margin per phone... if people had to pay $50 up front for the ip4 i bet a lot more people would buy it...

That's just plain silly. You clearlt know nothing about manufacturing. I was a manufacturer, and from my understanding, Apple's costs in total are higher than these guesses iSup
ly makes. In addition, no company can figure in a profit the way you state. They would lose money every time.

You have to figure in distribution costs, profits for your resellers, and a number of other costs. All of these companies involved in manufacturing, shipping, and selling the product have their own cost structures they have to deal with. Anyone who thinks that
parts cost is more than a fraction of the total cost is dreaming.
post #22 of 125
Quote:
Originally Posted by DaHarder View Post

It was merely a rough estimate, and should be taken as such.

I trust the rough estimate is based on careful analysis. I was just wondering if you could narrow it down a bit. Because with such ridiculously high margins, there has to be some shenanigans going on at Apple accounting wise. Their stated margins are way lower than your estimates were as in reality they should be close to Microsoft's. There is a lot of cash missing at Apple.
post #23 of 125
Quote:
Originally Posted by nicolbolas View Post

if Apple can;t say something like the price is close to $100 under what they sell the phone its still a rip off, selling 9.5+ million phones at $100 made per phone would mean that any costs of design would be taken care of ove and over... so i still feel that it is outrageously priced (for sales they expect, if those sales were half or maybe even 2/3rds it would make more sense...)

i feel that Apple would make monay of the iphone if they sold it for a penny above the manufacturing cost... (not really, but if it was $25 then it would be at least 10m (ip4 should sell at least this much before thye make a new one) that would be 25 million dollars... not including app's (new costumer,think it was like 25% of ip4 users are new (that or around 75% of 3g/gs users are going to ip4)

i mean Apple is showing the world how much F***ing $ they have on hand, you can argue its not much in terms of costs for keeping a company going, but they keep making record profits... if the lowered the price of the ip4 lets say 25% (using that it costs aprox 300 for cheapest model) ($600 unsubsidized) the price would be $450... that is still a $150 profit margin per phone... if people had to pay $50 up front for the ip4 i bet a lot more people would buy it...

You're suggesting they charge less? Let's have you run a business, let you make ~35-40% GROSS margin (which is not profit, for details read up corp finance) and I'll tell you to drop your selling price by 25%. THEN, you can tell Apple to do the same, or anyone else for that matter.

I'm amazed, truly am.
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post #24 of 125
Quote:
Originally Posted by DaHarder View Post

What's the big surprise...

How else do people think Apple keeps posting these (questionably) astronomical quarterly profits?

Hint: By charging 10 to 20 times more than the value of the actual hardware.

Oh please, that's worse than your usual drivel.
post #25 of 125
Quote:
Originally Posted by DaHarder View Post



Now try that nonsense in relation to an iPod Touch, Classic, Shuffle or more specifically an iPhone 3GS (which is still being sold/subsidized), and you'll be well within the ballpark of my estimates.

Otherwise, I really don't care...

HAHAHHAHHAHAHHAHAHHAHAHHAHHA

I usually refrain from such outbursts, but in your case, I can't help it!
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post #26 of 125
Quote:
Originally Posted by cvaldes1831 View Post

Apple writes off R&D costs every quarter in their SG&A. It's a separate line item in their SEC form.

R&D is written off, to a certain extent in that some of it is subrtacted from income. But not all, and the cost still must be factored into the price of the product.
post #27 of 125
Quote:
Originally Posted by DaHarder View Post

No, but other device manufacturers do seem more focused on proving a bit of 'value' in their wares than Apple.

But, as long as Apple can sell (essentially the same parts as other companies) at exorbitant prices, all's well within the iFanDom.

They don't sell 'parts'.

Enjoying all the attention, aren't you? I'll humor you for a bit and respond to your little gems.
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post #28 of 125
Quote:
Originally Posted by mobility View Post

Have no fear, like clockwork, DaHarder is here. Not just on AI, I've seen him on most tech blogs where any Apple (or anti-Apple) article is.

10 to 20 times, let's see the math now shall we? How do you know how much it costs?

That's only because that all you're looking for... the adverse.

Closer observation would reveal that I comment/blog/post on numerous products/services, Apple included, both favorably and otherwise.

Have a nice night...
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post #29 of 125
Quote:
Originally Posted by peter02l View Post

Don't give him a hard time. He is right. Apple should adjust its margins to the same level as Microsoft. Microsoft sold XP for 10 years at the same price. That is the proper way to take care of our customer. Office too has stayed a bargain for decades.

Yeah, I mean EVERYONE should have 80% gross margin like poor Microsoft, right? How dare Apple have 40% margin when they provide an OS AND Hardware to go with it. The audacity, the audacity, we deserve to hack them at the knees to bring them down to Earth. No one deserves to win!

Idiots. If people just worked hard and smart, they could have their own success. Instead they try and bring people down because they can't stand their success.
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post #30 of 125
Quote:
Originally Posted by peter02l View Post

Don't give him a hard time. He is right. Apple should adjust its margins to the same level as Microsoft. Microsoft sold XP for 10 years at the same price. That is the proper way to take care of our customer. Office too has stayed a bargain for decades.

That's a joke, right?

You do understand that MS's margins are almost double that of Apple, including the large losses from most of their business outside the monopoly areas of OS and Office?
post #31 of 125
Quote:
Originally Posted by DaHarder View Post

It was merely a rough estimate (like 99.9% of every figure posted in here), and should be taken as such.

Well, now weve got a mini troll to play along with you, unless it's just you with another account.
post #32 of 125
Quote:
Originally Posted by melgross View Post

Well, now weve got a mini troll to play along with you, unless it's just you with another account.

I have no idea what you're talking about, though I do wonder sometimes if the intention here is to 'moderate' or 'instigate'...

To each their own.
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post #33 of 125
Quote:
Originally Posted by DaHarder View Post

That's only because that all you're looking for... the adverse.

Closer observation would reveal that I comment/blog/post on numerous products/services, Apple included, both favorably and otherwise.

Have a nice night...

That's all YOU'RE looking for - to be contrarian no matter what. I've stayed silent observer for quite a while but today's comments took the cake. Look, I have gripes about the way some things are handled by Apple and the prices of some products. But really, if you make 'points' like you do, there's just no defending you. There really isn't.

I don't know why you do what you do, but it is pretty amusing. Bring on the flames DaHarder, I'd love to hear some more of your fantastic logic about how a $1000 macbook could be made for $50-$100, with an advanced OS and a ton of free SW. Better still, you do it, I'll even fund you if you let a documentary crew film your 'success story'.
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post #34 of 125
Quote:
Originally Posted by peter02l View Post

There is a lot of cash missing at Apple.

Could you mean the $4bn in cash they put away this quarter?
post #35 of 125
Am I the only one who thinks Apple is not referring specifically to iSuppli, but to every so called component price guru outside of Cupertino?
post #36 of 125
Why are most of the people on this board nothing but whiners? I mean they will criticize everything going down the pipe here. Parts by itself doesn't make a product. Why are people forgetting the research that goes into building the product? Design? etc. etc.

People - If you find Apple products expensive, no one is twisting your arms to buy them, go buy other product and enjoy the mediocre products. Secondly, the phones are subsidized by your carrier, let them worry about the real price of the phone. Your carrier isn't stupid either - they are recovering the money nicely also.
post #37 of 125
Quote:
Originally Posted by Postulant View Post

Am I the only one who thinks Apple is not referring specifically to iSupply, but to every so called component price guru outside of Cupertino?

No... You're not.
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post #38 of 125
Quote:
Originally Posted by nicolbolas View Post

i mean Apple is showing the world how much F***ing $ they have on hand, you can argue its not much in terms of costs for keeping a company going, but they keep making record profits…

if the lowered the price of the ip4 lets say 25% (using that it costs aprox 300 for cheapest model) ($600 unsubsidized) the price would be $450... that is still a $150 profit margin per phone... if people had to pay $50 up front for the ip4 i bet a lot more people would buy it...

1) Apple keeps making record profits fore many reasons. The biggest reason we’ve been seeing is the increased sales YoY which are assisted by having a small number of products that are being produced in great and great quantities: economy of scale.

2) If the price was dropped to $450 that wouldn’t necessarily alter the subsidization price offered by carriers. That’s up to the carriers. Some carriers in other countries offer them for less than $200 or even free, but they require different plans and contract durations to achieve this, either way, Apple makes their money.

3) No, more people wouldn’t be buying the iPhone 4 because the iPhone 4 is still sold out. Apple has a benefit of having a product people want, that they can’t produce fast enough, and don’t have to use shovelware to turn even a small profit. Yes, some smartphones are being shipped with pre-loaded shovelware that isn’t easily to remove.


Quote:
Originally Posted by melgross View Post

Well, now weve got a mini troll to play along with you, unless it's just you with another account.

I know you aren’t one to use the ban hammer, but this thread has already been jacked by asinine comments that are clearly written to troll. I implore you to consider the option.
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post #39 of 125
Parts costs are a fraction of total costs of goods sold. Costs of goods sold do not include R&D and operating expenses. None of these expenses are just "written off" they are real cash expenses where money is paid out to suppliers, manufacturers, employees, advertising and other marketing, law suits, free bumpers, shipping, related software such as iTunes etc. As expenses they are deducted from revenue when calculating taxable income, but "writing it off" has nothing to do with you not paying real cash for it.

As for Apple cutting their prices, do you idiots have any idea how a free market works? Have you no concept of supply and demand? Here's a clue. If people are lining up to buy a product in short supply, you RAISE the price to reduce demand to a level where you have enough supply to satisfy it. If you have tons of unsold inventory, or un tapped supply capacity, you lower prices to increase demand. At this point, the only rational argument is that the iPhone and iPad are too cheap based on Apples limited production capacity. If you lower the price of the iPad to $100, who even can get one will sell it for $600+ and make the $500 profit. Why should Apple give the product away and let the lucky customers make a profit when they could raise the price and keep the $500 themselves? Note this is supply and demand and has nothing to do with parts costs!
post #40 of 125
Since Apple won't supply iSuppli with the actual costs, it's a bit rich to expect iSuppli to be accurate in their estimates. If they want it to be accurate, then Apple could provide the info that allows it. If they want to be secretive about such things, then surely they have no business b!tching* when a company like iSuppli consequently makes what Apple deems to be inaccurate guesses.

I wonder if any other manufacturers use their financial reporting conference call time to bleat about iSuppli? Perhaps somebody could look that up. Say, Daniel... you don't seem to have much to do, judging by this latest piece - you could probably fit that into your schedule.

*A colloquialism for "sniping", present tense of "to snipe" as opposed to past tense, "sniped".
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