iPhone 3G Manufacturing Cost of $100?

[Hurmoth]

The $199 iPhone: still a money maker

Apple is likely to reap significant profits despite slashing the cost of its updated iPhone in half, said analysts. Although details about the phone are still scarce, sources said they believe Infineon and Samsung have continued to snag the top chip designs in the handset.

The raw cost of materials to build the iPhone 3G could be nearly half that of the original model, according to Portelligent Inc. (Austin) that conducted a teardown analysis of the first handset. The first phone had a bill of materials estimated at $170 at launch, but the iPhone 3G could have a BOM as low as $100 when it debuts July 11, said David Carey, president of Portelligent, a division of TechInsights, the publisher of EE Times.

The cost cut is also strategic for a company seeking to extend its toehold in the massive cellular market. Apple has sold 6 million iPhones to date mainly in the U.S. in a market where nearly a billion handsets ship each year worldwide.

"Gen2 iPhone pricing is aggressive enough that it made me think Apple's really taking the gloves off on this one," said Carey. "They are probably not as worried about iPhone hardware profits as they are about getting a piece of the action on service revenues and getting more Macs in homes and offices all around the globe," he added.

Indeed, Apple launched a new subscription service called MobileMe for the iPhone 3G.

The original iPhone used the 2.5G EDGE network which delivers a maximum 256 Kbits/s. The new iPhone 3G uses the HSDPA version of W-CDMA, a standard which supports a minimum of 1.5 Mbits/s and up to 7.5 Mbits/s on some chips sets, including one from Infineon.

"I do believe they are continuing to use an Infineon baseband and RF transceiver and a Samsung applications processor," said Will Strauss, principal of market watcher Forward Concepts (Tempe, Ariz.) based on information from a source he would not name.

Strauss said he expects the new model also uses a global positioning system chip from Infineon based on technology it licensed from startup Global Locate which was recently acquired by Broadcom Corp.

Carey said some observers speculated the iPhone 3G uses Infineon comms chips based on some of the code seen in the software developer's kit for the new version of the handset.

Last month Samsung launched a handset using the same Infineon and Samsung baseband, RF and processor chips. At the time, Samsung stated the Infineon chips cost 20 percent less than similar chips from rival Qualcomm, Strauss said.

Strauss said he believes the entire bill of materials for the Samsung phone could be 20 percent less than a similar design based on Qualcomm chips.

Why the iPhone 3G could be cheaper

Carey of Portelligent said several factors make the iPhone 3G potentially much cheaper to build than the original iPhone.

"I'd suspect the collective volume, learning and engineering changes to the display would mean that the whole touch screen assembly might be about half the $60 or so we estimated for Gen1 a year ago," Carey said. "In addition, the 8 Gbytes of MLC NAND is today around $20 compared to the $50 that might have been the case in June 2007," he added. Carey estimated Apple may have shaved another $25 off the bill of materials costs based on changes he observed in a teardown of the iPod Touch.

Those changes are only slightly offset by new costs for the iPhone 3G. Carey said the additional cost of an HSDPA chip set are only about $15 plus another $5 for the GPS chip. He also noted that the $100 price increase for a model with 16 Gbytes flash adds to the profit margin because the additional memory chips probably cost Apple only about $20.

Netting out all the changes Apple may have had a gross profit based solely on cost of hardware for the original iPhone of $229 and profits of just $99 for the iPhone 3G. "It's always important to point out that hardware BOM costs do not capture many other important facets of product cost such as development costs, software costs, licenses and marketing," he said.

Though profits may be lower, Apple is likely to sell many more units with the new iPhone, said Strauss. Some big markets such as Korea and Japan do not use the EDGE network of the original iPhone, but they do use HSDPA.

Apple announced agreements with a wide range of carriers across Asia, Europe and the U.S. who will sell the iPhone 3G, 22 of them starting on July 11. About another 50 carriers will provide the handset before the end of the year, said Apple chief executive Steve Jobs who announced the handset at Apple's developer conference Monday (June 9).

"I think Apple is going to do very well with this phone," Strauss said. "The fact they have this updated air interface opens many new markets for them," he added.

Both Carey and Strauss noted carriers may be providing an undisclosed subsidy for the new iPhones. AT&T for example, sold a high end Palm Treo phone for $199 after a subsidy, Strauss said.

Carey said the new iPhone probably contains a larger battery based on claims of longer battery life. Apple could easily maintain the existing weight of the handset by using lighter materials in the casing such as plastics which could also improve the cellular reception of the device.

[profets]

very interesting if its true. also, i'd think if this is the case and if they were to have the same setup as last year (no contract signing required in store), and maybe a price of 299 for the 8gig, theyd sell waaay more. just an opinion though

[RubberJabber]

For an extra $20 ($40 or so for us consumers), why don't they just make the 16gb standard and roll out a 32gb when it's available.

[profets]

For an extra $20 ($40 or so for us consumers), why don't they just make the 16gb standard and roll out a 32gb when it's available.

definitely good idea. would even show a good image for the iphone that the new version has double storage as the previous

[shadowmatt]

Well apart from the advertising, OS, updates, research, licensing, distribution and all the other things that go into a product such as this... Then all they have is 1 problem getting people to buy one. The $20 manufacturing difference is where the real profit comes in. As with any product if you buy the base model the manufacture gets a little profit, but if you opt for the top end version they get the mega bucks.

Like the low on top end XBox 360 hard drives, cars and all sorts of other products...

Saying that the iPhone was the best phone I have ever owned and I will be getting a new one because of the price drop.

[Punio4]

It's not half the price, it's 40$ more expensive.

400$ + 20$x24 months = 880$

200$ + 30$x24 months (new rate) = 920$

[ANova]

Indeed Punio4. As with most companies, they rip the consumer a new one. Apple is already making a decent profit just on the sale of the phone alone plus they then get a large percentage of the pricey monthly service costs that AT&T is charging just to use the damn thing.

[Hurmoth]

Indeed Punio4. As with most companies, they rip the consumer a new one. Apple is already making a decent profit just on the sale of the phone alone plus they then get a large percentage of the pricey monthly service costs that AT&T is charging just to use the damn thing.

Not true. Apple is not going to be getting a % with the 3G iPhone.

Some people need to take off the anti-Apple goggles and pay attention (not speaking to anyone here specifically). The cost of the new monthly plan has NOTHING to do with Apple and everything to do with AT&T. AT&T requires all 3G phones to pay an extra $30 a month for their plan for data usage.

Source...

AT&T has issued a press release providing additional details about service plans for the iPhone 3G in the U.S. First of all, AT&T confirmed that it remains the exclusive U.S. carrier for the iPhone, which will be available starting on July 11th.

The new iPhones will cost $199 (8GB) and $299 (16GB) with an unlimited 3G data plan costing $30/month. This is an increase from the current $20/month unlimited EDGE data plan for the 1st generation iPhone. Voice plans continue to start at $39.99, but no additional details are provided.

Meanwhile, AT&T reveals that Apple will no longer receive the revenue sharing from each users plans. It was highly publicized that AT&T paid Apple a portion of its monthly recurring service charges for each iPhone user. Under the new agreement, there is no revenue sharing. AT&T is presumably directing that money towards the $200 subsidy for the iPhone.

[zerologic]

Uh, well the new iPhone is made in China and the labor costs there are very low, plus the phone now has more plastic and less tin. So I'm not surprised the real cost of manufacturing the iPhone is ~$100.

[excalpius]

If the revenue sharing plan is going the way of the dodo, I would expect that there is now an accelerated expiration on that exclusivity clause. The only reason for Apple to have gone with AT&T exclusivity was the monthly kickback. With that out of the picture, this is a straight commodity unit sales deal. And with no less than three very solid iPhone competitors coming out within 60 days (Samsung Instinct, Blackberry Thunder, and HTC Touch), the exclusivity is just going to hurt Apple terribly right now.

So has anyone seen that new contract? 8)

[WooSH]

^ i think apple and att announced that they would remain exclusively tied together for atleast 5 years, and nothing shorter.

[Hurmoth]

Apple will continue to go with AT&T because they are allowing Apple to control every aspect of the phone. Other wireless companies typically decide a lot of the features and other requirements from what I've read.

Interesting read on the history of the iPhone: http://www.wired.com/gadgets/wireless/maga...16-02/ff_iphone

[duritz]

Apple will continue to go with AT&T because they are allowing Apple to control every aspect of the phone. Other wireless companies typically decide a lot of the features and other requirements from what I've read.

Interesting read on the history of the iPhone: http://www.wired.com/gadgets/wireless/maga...16-02/ff_iphone

very cool read. thanks.

[ANova]

Not true. Apple is not going to be getting a % with the 3G iPhone.

Some people need to take off the anti-Apple goggles and pay attention (not speaking to anyone here specifically). The cost of the new monthly plan has NOTHING to do with Apple and everything to do with AT&T. AT&T requires all 3G phones to pay an extra $30 a month for their plan for data usage.

Source...

Last I checked Apple and ATT signed a contract that gave Apple a large portion of ATT's revenue generated from the monthly service costs for iphone customers in turn for giving ATT exclusivity, if that has changed fine but frankly I don't care.

Ultimately the customer is paying more to use the phone over the past model.

[Hurmoth]

^ Actually it wasn't directed at you (or anyone else in particular for that matter). That I can promise :) I can understand where someone might not have heard about that.

But you'd be paying the same if you purchased any other 3G phone from AT&T, not just the iPhone.

[EDIT] I would like to note that I'm actually not going to upgrade my iPhone. I was going to, but then after looking at the 3G coverage map, my area doesn't have 3G yet and I'd still have to pay for the 3G service even though I couldn't use it where I live. Again, that's an AT&T policy, but that right there stopped me and hopefully it stops others in my area from purchasing the phone as well, at least until they upgrade the network here.

[+Warwagon MVC]

Damn you Verizon!!!

[SomeAzn]

I hate these articles. It is interesting to see how much raw materials a particular product costs but that is SO short sighted.

The biggest cost in high-tech hardware is R&D.

This would be like pointing out it only costs Microsoft $0.01 to burn Windows on a DVD.

Also, making a profit is completely different from turning a profit.

[kingroach]

I dont understand why other companies cant offer their phone at similar prices. For examples, HTC Touch Diamond. It cost about $600 with 4GB memory while iphone has better screen, GPS and 8GB memory or N95-4 which has 8GB and GPS but no touchscreen and it still cost about $600

[WooSH]

^ well the iPhone is subsidized. meaning it still costs $400/600 but Apple pays for part of it for signing their two year contract.

[MrChainsaw]

Well I'm aint surprised.... Its a bit obvious that no one would sell something if its not profitable....

[EnzoFX]

Uhm, the cost of the data plan is ATT's fault, now Apple's. They've upped their rates, and it goes for all smartphones, not just the iPhone. It's hardly a point against apple.

[Coolme]

Maybe they've upped the rates because of the upgrade from unlimited EDGE to unlimited 3G?

[oldaccount1]

Maybe they've upped the rates because of the upgrade from unlimited EDGE to unlimited 3G?

+1