Apple assails iSuppli iPhone 4 part cost estimates

Posted:
in iPhone edited January 2014
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 don?t put a lot of credence in these third-party reports that you see. It?s 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."
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Comments

  • Reply 1 of 124
    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...
  • Reply 2 of 124
    ruel24ruel24 Posts: 432member
    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!
  • Reply 3 of 124
    daharderdaharder Posts: 1,580member
    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.
  • Reply 4 of 124
    hill60hill60 Posts: 6,992member
    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.



  • Reply 5 of 124
    daharderdaharder Posts: 1,580member
    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.
  • Reply 6 of 124
    maestro64maestro64 Posts: 4,942member
    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.
  • Reply 7 of 124
    maestro64maestro64 Posts: 4,942member
    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.
  • Reply 8 of 124
    solipsismsolipsism Posts: 25,726member
    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.
  • Reply 9 of 124
    rkrickrkrick Posts: 66member
    Quote:
    Originally Posted by solipsism View Post


    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.



    Yep, and my 13" Macbook Pro probably only cost them 60-120 dollars to produce... LOL
  • Reply 10 of 124
    cvaldes1831cvaldes1831 Posts: 1,832member
    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.
  • Reply 11 of 124
    mdriftmeyermdriftmeyer Posts: 7,502member
    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.
  • Reply 12 of 124
    tofinotofino Posts: 697member
    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?
  • Reply 13 of 124
    daharderdaharder Posts: 1,580member
    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...
  • Reply 14 of 124
    daharderdaharder Posts: 1,580member
    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.
  • Reply 15 of 124
    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.
  • Reply 16 of 124
    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.
  • Reply 17 of 124
    daharderdaharder Posts: 1,580member
    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. ;-)
  • Reply 18 of 124
    daharderdaharder Posts: 1,580member
    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.
  • Reply 19 of 124
    mobilitymobility Posts: 135member
    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?
  • Reply 20 of 124
    melgrossmelgross Posts: 33,001member
    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.
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