Apple profits for hardware will drop but software sales and market share will climb

Last year when the first generation iPhone was announced by Apple, the bill of materials for the device was estimated to be in the area of $170. According to recent analysis the new iPhone 3G could be costing Apple significantly less to make than the original iPhone.

According to teardown analysis from Portelligent Inc., the new iPhone 3G could have a bill of materials as low as $100. This reduction in the cost to build the device takes into account the increased prices for the addition of a 3G chipset and a GPS chip.

“Gen2 iPhone pricing is aggressive enough that it made me think Apple's really taking the gloves off on this one," noted Portelligent president David 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.”

This aggressive pricing is taking some money out of Apple’s coffers on hardware sales. However, Apple will likely make up the losses on hardware sales in revenues for software sold via the App Store. DailyTech reported that the App Store could be a billion dollar business for Apple by 2009.

Will Strauss from Forward Concepts told EETimes that he believes the iPhone 3G is using an Infineon baseband and RF transceiver along with a Samsung applications processor. Samsung launched a handset with these same parts recently and pointed out that the cost of the Infineon chips were about 20% less than similar chips from Qualcomm.

According to Carey, the addition of the HSPDA chipset adds $15 and the addition of the GPS chip adds another $5. Those additional costs are offset in part by the reduced memory pricing compared to last year. These cost figures, of course, don't take into account development, marketing, and software costs.

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