Print 80 comment(s) - last by Zaphod Beebleb.. on Jun 26 at 2:41 PM

Apple earns approximately a $400 profit per 16 GB iPhone 3G S sold, and $500 per 32 GB 3G S sold.  (Source: iSuppli)
Apple is making a handsome profit on its new phone

Apple has reportedly the world's strongest brand image, and yet manages to maintain some of the industry's largest profit margins, a rare achievement.  Now that the iPhone bill of materials (BOM) for the iPhone 3G S has been divined thanks to an iSuppli tear down, it appears that Apple has another business success story on its hands with the iPhone 3G S.

The hot new phone's components cost $172.46, for the 16 GB model, according to Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli.  The most expensive component is the 16 GB of NAND flash memory, produced by Toshiba and estimated to cost $24/unit.  Least expensive is the audio codec chip, which costs a mere $1.15/unit, produced by Cirrus Logic.

The phone costs approximately $6.50 to assemble, bringing the estimate cost to $178.96/phone. 

The 16 GB iPhone 3G S costs $599.99 for returning customers with less than a year on their contract, and as little as $199.99 for new customer or returning customers with 2 years on their contract.  However, according to reports, Apple sells the iPhones to AT&T at approximately $600 per phone, and the carrier provides the discount.  Apple is also rumored to get a small cut of the subscription fees.

States Mr. Rassweiller, "Although the retail price of the 16GB iPhone 3GS is $199, the same as for the 8GB version of the original iPhone 3G, the actual price of the phone paid by the service provider is considerably higher, reflecting the common wireless industry practice of subsidizing the upfront cost of a mobile phone and then making a profit on subscriptions."

At a minimum, before shipping, R&D, etc., it appears Apple is making a whopping  $422 profit on every $178 (manufacturing cost) phone sold.  That incredible profit margin may be cut into a bit by the aforementioned expenses of transportation, R&D, advertising, and other costs, but likely remains quite impressive at the end of the day.  Even better for Apple, it likely enjoys an even larger profit on the $699 32 GB iPhone 3G S, as the only difference is a marginally more expensive (likely $20 or less) NAND chip.

Concludes Mr. Rassweiller, "From a component and design perspective, there's also a great deal of similarity between the 3G and the 3GS. By leveraging this commonality to optimize materials costs, and taking advantage of price erosion in the electronic component marketplace, Apple can provide a higher-performing product with more memory and features at only a slightly higher materials and manufacturing cost."

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

By dagamer34 on 6/25/2009 9:00:47 AM , Rating: 5
At a minimum it appears Apple is making a whopping $422 profit on every $178 (manufacturing cost) phone sold.

I think you meant, at a MAXIMUM. Apple cannot make anything MORE than $422 per phone. And the fact that the title strongly misleads the reader is quite horrible. Not until you get to that paragraph do you start mentioning things like R&D, shipping, and paying for retail costs. It's not trivial! Manufacturing costs != cost to company.

Badly written article.

RE: Minimum?
By orgy08 on 6/25/2009 9:04:45 AM , Rating: 2
When you consider the other cost, maybe thats an additional $100 cost per phone, thats still over $300 in profit. But you go ahead and give your money away.

RE: Minimum?
By retrospooty on 6/25/2009 9:24:47 AM , Rating: 5
"When you consider the other cost, maybe thats an additional $100 cost per phone"

Higher... The BOM is just what it says it is - bill of materials. The materials cost that price. Its not just shipping and R&D - there are software licenses, and tremendous internal OS costs. I supposed you could roll that up under R&D, but its not cheap. There is packaging, manufacturing, quality control, ongoing reliability testing, shipping, reverse logistics (repair and the associated costs) and likely a half dozen other things I am failing to remember at 6 AM. It costs alot. I am sure they are making a nice profit, but to think the overhead costs only $100 is a fantasy.

RE: Minimum?
By tenat on 6/25/2009 9:33:25 AM , Rating: 2
well said retrospooty.

the price of a product is not the sum of the components used. Price is set by what the market is willing to pay for the device/service.
the cost to come up with an innovation is usually much higher.

the amount of money Apple would spend to develop a new phone would be huge compared to what it would cost them to produce the phones in large amounts.

RE: Minimum?
By orgy08 on 6/25/2009 9:45:25 AM , Rating: 2
Not much has changed from the orignal iphone in terms of software and r&d. I would say most of the r&d and software were recovered for the first iphone and maybe some of the first iphone 3g. I just through out $100 per phone as a number, but your right, it could be higher, but then again it could be lower.

RE: Minimum?
By retrospooty on 6/25/2009 9:53:29 AM , Rating: 2
"Not much has changed from the orignal iphone in terms of software and r&d. I would say most of the r&d and software were recovered for the first iphone and maybe some of the first iphone 3g"

That's nice of you to say that, but the fact is you dont know how much it is, or was, or continues to cost in updates, bugfixes and new features, writing the ROM upgrades, QC etc etc. The way companies work is they pay internal costs. The hardware/iphone division pays X amount of dollars to the OS division per phone. The OS may or may not have paid for itself by now - it WAS a huge leap forward that changed smartphones forever.

Everyone acting like these costs dont exixt, or minimalizing thier impact, incvluding the article's author have obviously never working in a manufacturing environment - at least not a high level job.

RE: Minimum?
By omnicronx on 6/25/2009 11:32:12 AM , Rating: 2
While all of that may be true, Apple does have a track record of having impressively high profit margins, it would not be beyond the realm of possibility to believe that Apple is making a pretty penny on these iPods. You don't need to work in a manufacturing environment to make this inference ;)

RE: Minimum?
By omnicronx on 6/25/2009 11:28:22 AM , Rating: 2
But how much of that is still ongoing? There is no way they are spending anywhere close to the amount in R&D as the original iPhone. This is just common sense, as a product matures, costs go down. That being said, there is no way there is only an overhead of $100. Although my guess is that they are making around 200$ per Touch which is still quite impressive.

RE: Minimum?
By Shadowself on 6/25/2009 11:53:31 AM , Rating: 2
While the hardware leap from the 3G to the 3GS was significantly smaller than the leap from no phone to the original iPhone, the ongoing R&D on these phones is still huge. They purchased PASemi last year specifically to be able to create better chips for this phone -- and the PASemi guys have not been sitting doing nothing since then. You can bet there have been, or at least soon will be, several runs (or "spins") of test CPUs and other chips specifically designed for the next generation phone.

There is a lot more to ongoing R&D on these types of products than most people think

RE: Minimum?
By ZeeStorm on 6/25/2009 9:28:58 AM , Rating: 2
I paid $300 for my 32GB phone, which costs them more than $300 to make and get it to me. AT&T covered the rest of the costs... did I lose out at all? No, I don't think so.

Plus, you're STILL wrong. The amount of costs that Apple dipped into during the 1st gen and 2nd gen definitely are made up through the profit on the 3rd gen. For example, look at all these car companies. Does it really cost $27k~ to build a new Prius? No, it's more like $10-15k for the manufacturing costs, but over the course of how much time and money spent to actually BRING it to consumers, averages out the price to high $20s. People like you just are narrow-minded Apple-competition fanbois... considering almost every corporation that has manufactured goods to date does what Apple does.

RE: Minimum?
By ZeeStorm on 6/25/2009 1:06:32 PM , Rating: 2
Also did you think about the cost of the OS? Least it's their own brand, but you're paying for that too, and that's not in manufactured costs.

Least it's not the cost of Windows 7:

These stupid articles (and the people who write them) are retarded when they don't think of all the extra costs that go into something like this. iSuppli can't cover everything. All 100+ blogs that have reported this are wrong with their claims of over $400 profit on the iPhone...

RE: Minimum?
By raymond520 on 6/25/09, Rating: -1
RE: Minimum?
By psychobriggsy on 6/25/2009 10:06:37 AM , Rating: 3
How much is R&D per phone when they're probably expecting to sell 20 million of them before the next model comes out? $10 per device? Certainly no more than $50 per device - I can't see them spending $1b on iPhone OS 3 and the hardware design and testing.

Possibly they're letting the carrier make some money on each phone though. Sell it to the carrier for $500, let the carrier charge $600 for it, $100 incentive to the carrier to push that phone, and also acquiesce to Apple's demands (here, implement visual voice mail, now implement push notification, etc).

Still, that's still well over $250 profit per device, probably $300 on average. That's a good $6b profit over the next year (in reality, before the GAAP thing Apple does).

RE: Minimum?
By fishbits on 6/25/2009 10:20:19 AM , Rating: 2
Horribly misleading. Wow. How can a person write something that invalidates his own headline, then not fix that headline before posting it? Don't know whether it's scarier that this behavior is deliberately dishonest, or that the author would claim to not know any better.

RE: Minimum?
By Regs on 6/26/2009 1:26:52 PM , Rating: 2
Seriously. Remember taking Accounting in college? Cost of goods sold = direct labor, direct materials, overhead! Then you take the costs of goods sold and add it to the income statement. Even then you have to subtract all indirect expenses to come up with revenue.

This article should be deleted.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain

Latest Headlines
Inspiron Laptops & 2-in-1 PCs
September 25, 2016, 9:00 AM
The Samsung Galaxy S7
September 14, 2016, 6:00 AM
Apple Watch 2 – Coming September 7th
September 3, 2016, 6:30 AM
Apple says “See you on the 7th.”
September 1, 2016, 6:30 AM

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki