Following various dissections
of the red-hot iPhone, analysts are estimating that each unit is selling
for more than double manufacturing costs.
Austin-based firm Portelligent estimates that it costs $200
in materials to manufacture the 4GB version, and $220 for the 8GB, reported BusinessWeek.
Earlier this year, analyst firm iSuppli (no relation to the
iPhone) estimated that iPhone gross margins
will be around 50 percent, according to its early bill of materials
figures. Following the launch of the iPhone, iSuppli has updated its cost
estimates, putting the cost of the 8GB version at $265.83, up just over a
dollar from its $264.85 figure from January.
In its January cost estimates, iSuppli added non-hardware costs of almost $16 to include EDGE royalties, operating system costs and other software for a grand cost total of $280.83.
With the 8GB iPhone selling for $599, Apple is generating a
margin of more than 55 percent for each device sold. Eric Pratt, iSuppli's
senior director of tear-down, said in an AP report
that iSuppli is still fine-tuning its report, but believes that the product's
margin is more than 50 percent even when accounting for factors like royalties
and software costs.
News of iSuppli’s cost estimates proved to help Apple’s
stock, with it up nearly 5 percent, or $5.91 following the release of the
report. With the iPhone selling 525,000 phones in its first three days of
availability, the device could have already generated around $150 million –
certainly good news for investors and a reason for the stock to jump.
The healthy margin for the iPhone isn’t only good news for
Apple and friends, however, as consumers who cannot presently afford the shiny
toy have a reason to be pleased. The margin space will give Apple greater
freedom to drop prices sooner than if every iPhone were sold closer to cost.
“With a 50 percent gross margin, Apple is setting itself up
for aggressive price declines going forward,” said Jagdish Rebello, PhD,
director and principal analyst with iSuppli.
Despite tear-down analysts’ best efforts, nailing down the
bill of materials for the iPhone isn’t an easy task, as not all of the
components that make up the device are of clear known origin. For example, the
iPhone’s touchscreen – one of the components estimated to be the costliest –
bears no markings to give clue as to which manufacturer it came from. The best
guess that analysts can put together is that the screen is made by German
It is also not known exactly which company is building the
iPhone for Apple. Although Chinese company Foxconn makes iPods, which put its
company fingerprints all over the music player, there isn’t a signature from
the maker of the iPhone. Foxconn has declared that it is not manufacturing the
“A great deal went into the internal mechanics and how it
all came together,” said David Carey, Portelligent's CEO. “There are lots of
tiny nooks and crannies where things have to be very precisely tucked in to
make it all fit together.”
“You have to build something like this in a place where
labor is inexpensive,” says Carey, which BusinessWeek
believes means China. But Carey says it's unclear who manufactured the iPhone:
“There are no markings indicating exactly who built it.”
In terms of money generation, Apple won’t just be profiting
from the iPhone alone. The company is also offering a full line of
appropriately themed accessories from Bluetooth headsets to charging
cradles. For iPhone owners with battery woes, Apple will charge $85.95 as part
of its replacement program.