IPhone 5 bill of materials estimated at $167.50, $35 more than the iPhone 4S

http://news.yahoo.com/iphone-5-bill-materials-estimated-167-50-35-175058524.html

by denzil_correa • 14 years ago

31 45 14 years ago

news.yahoo.com

Zaheer2• 14 years ago

While checking out the raw price tag is nice, don't forget about R&D/Production costs.

arn• 14 years ago

Yep, otherwise all software should cost close to price of the delivery system (cd, bandwidth)

mongol• 14 years ago

Yes, and marketing, logistics...

Zaheer2• 14 years ago

Yes, among many other things! Materials cost doesn't really mean much.

barista• 14 years ago

Insane profit margins here. Love AAPL!

fredoliveira4• 14 years ago

If these guys can build a phone of this quality and make a big profit, imagine how much money their competition is making by using cheaper materials (and judging by what we know, lower production/r&d costs) while selling for the same prices.

bradleyland• 14 years ago

Yet no one else is posting anywhere near the profits that Apple (AAPL) is, quarter after quarter. Yes, their margins are slimming, but they still lead their market in terms of actual profits.

mtgx2• 14 years ago

Apple is also making this low profit by negotiating too hard with Foxconn and other suppliers, which in turn hurts the workers there. At the end of the day Apple cares more about profit than anything else.

thezilch• 14 years ago

Source? Cheaper materials? Lower R&D costs? I see it touted a lot, but it stops there, as cheap shots in the wind.

I have a portable music player, phone, laptop, and desktops that match or beat competing Apple products.

I've yet to see that Apple spends anything close to other players' R&D. PR maybe. A lot of us are questioning whether the "Apple polish" is the extent of their "innovation" and it is anywhere the sink others put into R&D.

qq66• 14 years ago

The competition is making FAR less profit per smartphone sold than Apple, largely because of the volume per model sold, and also because of vertical integration. In fact, outside of Samsung, most competitors are probably losing money.

Apple only sells one model of iPhone per year, in about 10 very similar configurations, which gives them huge economies in assembly and strong negotiating power on components (they're buying 100 million of a certain type of display, instead of 5 million of 10 different kinds of displays). Furthermore, the supply chain economics are much better, with lower inventory costs (if you are trying to keep 10 items in stock with variable demand, you'll need to have more inventory on hand than if you have only one item).

The second big profit driver for Apple is vertical integration -- they sell a good chunk of iPhones, especially in the US, themselves, whether online or at Apple Stores. This means they get to keep the entire profit instead of handing over some of it to a retailer.

Skroob• 14 years ago

Fine. How much does it cost to build the machine that mills the case out of a block of aluminum? How much does it cost to employ the people that design the hardware, that write the software? How much does it cost to market, distribute and sell on a global scale? The cost of an iPhone, or any mass-produced product, is WAY more than the cost of each individual part from NewEgg.

rrmm• 14 years ago

There's no implication here that Apple is ripping you off. It's just a calculation of the cost of the BoM which gives industry analysts an idea of Apple's bottom line.

ctdonath• 14 years ago

Indeed. For anyone who complains "Apple is ripping off consumers", I dare say we could dump the pile of parts in front of someone and they would, at best, have a terrible time assembling them - never mind the costs of setting up a supply chain going from raw materials to completed product in a matter of days.

When my wife was starting her MBA, she asked me out of the blue "what do you think of supply chain management?" Having nary a clue what she was talking about, and being a sarcastic sort, I retorted "I think it is evil and should be outlawed." Now, having for some years observed Apple's supply chain development, I realize how critically important it is and wildly overlooked it is by pundits.

To great degree, it is thanks to Apple pouring BILLIONS of dollars into suppliers & supply chain management that they can construct something as mind-blowingly Star Trek-ish as the iPhone for just $167.50 in parts. You're sure not going to wander into a well-stocked Radio Shack or Fry's and get the same parts for that price.

dalke• 14 years ago

Basically you're asking how much would it cost to make an iPhone from scratch, assuming we start with a hunter/gatherer level civilization. That's a pretty useless value, because that civilization cost is shared by many other things and amortized over a long history.

Prices, therefore, are only meaningful in a relative context, assuming a baseline, which is what this cost estimate is. And that baseline changes, which is why 1GB now is so cheap while 40 years ago it was very, very expensive.

erikpukinskis• 14 years ago

We built it!

mdasen• 14 years ago

Apple definitely puts a lot of money into research and development to create the software and manufacturing techniques. This estimate is more about marginal profit. To make it a bit clearer, if Apple sold zero iPhones, the R&D costs you talk about would still be incurred (and in the same amount). If Apple sells a billion iPhones, the R&D costs you talk about would be the same amount.

One could imagine a company that does $1M in R&D, has a price per unit of $650, and a cost per unit of $500. Similarly, a company could do $100M in R&D, have a price of $650, and a cost per unit of $200. At some number of units (and I'm just being lazy here since I don't want to do the math), the second company makes more money.

A statement like this isn't meant to sound like Apple isn't offering customers a good value, but rather that the cost to supply 1 additional iPhone is small compared to the revenue gained by selling 1 additional iPhone - basically, that a lot of Apple's costs are R&D, not component costs. When evaluating a company for investment, it's nice to see that they aren't running thin margins on supplying marginal units and so the more they succeed, the more the R&D costs are spread out.

JimmaDaRustla2• 14 years ago

Apple definitely does not put lots of money into R&D.

http://blogs.wsj.com/tech-europe/2012/05/14/nokia-outspent-a...

Not that it is a BAD thing, or a good thing - the innovations from R&D past pays off years after, but they only spent 2.4 billion. They tried sueing Samsung for more than their total annual R&D costs.

Again, not science here, just an oberservation that they are indeed cheap with R&D.

ImprovedSilence• 14 years ago

>>"How much does it cost to build the machine that mills the case out of a block of aluminum?"

That costs Apple nothing, it costs the manufacture a set dollar amount, which it then recoups and then some by selling cases to apple for $x.xx. So technically, the cost for building the machine to mill aluminum is already accounted for in the bill of materials.

saturdaysaint• 14 years ago

Do you have specific knowledge of Apple and Foxconn's relationship? Tooling costs are routinely passed from suppliers to finished goods makers.

mtgx2• 14 years ago

The link mentions a lower BOM for iPhone 4S, but it's important to note that this is the BOM for iPhone 4S right now, not when it launched. Obviously the cost of the components for iPhone 4S has lowered since a year ago.

The BOM for iPhone 4S and iPhone 4, at the moment of launch was $188, so more than the current iPhone 5. Sounds to me like Apple is skimping on what it can add to the new iPhone, and prefers the extra profit instead. Usually others have the cost of materials about half of the final retail price, and that helps with covering for R&D and other costs as well. Apple seems to have the BOM 1/4 of the retail price of $650.

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4-Carries...

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4S-Carrie...

dave5104• 14 years ago

Apple doesn't strike me as a company to skimp on materials though. My initial assumption would have been that they struck better deals for sourcing materials and parts. They're in a damn good position to do that, so I don't see lower prices for what they need to be too far fetched.

yojimbo311• 14 years ago

First, I find these pre-teardown estimates and price guestimates to be completely misleading and uninformative. It's foolish to base any opinion on a guess using information that has not been confirmed in an even moderately rigorous manner. The sun doesn't revolve around the Earth despite opinions to the contrary.

Second, by your own admission component costs have declined. Why would you leap to the conclusion that Apple would be skimping purely on the price difference alone? Perhaps they are benefitting from the variety of factors that have caused component costs to be reduced during that time? It makes perfect sense to use today's prices to compare the component costs of the two devices, otherwise it's disingenuous unless all the factors that led to today's reduction in costs for the components in question are accounted for.

mbell• 14 years ago

These numbers don't 'jive' to me. The iPhone5 has the touch panel built into the screen yet the category for "Touchscreen/Cover Glass" is actually higher on the iPhone 5 implying the glass on the 5 is actually more expensive than both the glass and the touch panel on the 4s ($7.50 vs $6.50). Compare that to the iSuppli BOM which had the iPhone 4s touch panel alone at $14 and the glass doesn't even make it on the major cost driver list.

nchlswu• 14 years ago

I've only seen BoMs publicized for Apple products. Are these often done for competitors?

petermonsson• 14 years ago

Yes: Teardowns from Isuppli often include a BoM:

Lumia 900 + Galaxy S2: http://www.isuppli.com/Teardowns/News/Pages/Nokia-900-Carrie...

yalogin• 14 years ago

Shouldn't every other phone cost a similar amount? Also the other phones sell for similar prices as well (unlocked ones). So what is special/interesting about knowing the BOM estimates for the iPhone?

olalonde• 14 years ago

Because the iPhone is probably the most widely used phone on HN.

kennywinker• 14 years ago

and yet they manage to charge $100 more for the 32gb flash. Something that probably sets them back less than $10. Nicely done sirs, nicely done.

MrFoof• 14 years ago

That's because the storage provides a measurable benefit to the buyer. "Hey, I can 16GB for a subsidized $200, but if I spend 50% more money, I get 100% more storage".

Every computer manufacturer does this for both RAM and storage. Mostly because the take-rate for memory and storage upgrades are far higher than, say, CPU upgrades which provide less measurable benefit for a significantly higher cost to the OEM/system integrator.

IPhone 5 bill of materials estimated at $167.50, $35 more than the iPhone 4S

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