iPhone 3G has $173 BOM, iSuppli estimates
By Ann Steffora Mutschler, Senior Editor -- 6/25/2008
According to a preliminary “virtual teardown” by market researchers at iSuppli Corp, Apple Inc’s second-generation iPhone is expected to carry an initial hardware bill of materials (BOM) and manufacturing cost of $173.
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While iSuppli said it had originally planned to withhold analysis of iPhone content and costs until it had conducted an actual physical teardown of the product, however, due to strong demand for information on iPhone costs and pricing, the company decided to release a preliminary analysis. Once the 3G iPhone becomes available, iSuppli said it will perform an actual, detailed teardown of the new iPhone’s components and cost structure.
“At a hardware BOM and manufacturing cost of $173, the new iPhone is significantly less expensive to produce than the first-generation product, despite major improvements in the product’s functionality and unique usability, due to the addition of 3G communications,” noted Dr. Jagdish Rebello, director and principal analyst for iSuppli, in a statement. “The original 8Gbyte iPhone carried a cost of $226 after component price reductions; giving the new product a 23 percent hardware cost reduction due to component price declines.”
The figure below is iSuppli’s preliminary virtual teardown estimate of the 8Gbyte 3G iPhone’s costs, but does not include other costs, such as software development, shipping and distribution, packaging, and miscellaneous accessories included with each phone.
(Source: iSuppli Corp)
Apple is making a significant departure in its pricing strategy with the iPhone 3G, Rebello said. “The original 2G phone was sold at an unsubsidized price of $499. However, at a retail price of $199 for the low-end 8Gbyte version of the new 3G model, wireless communications service carriers will be selling the product at a subsidized rate, using a common business model for the mobile-handset market. The size of the subsidy paid by the wireless carriers to Apple will be about $300 per iPhone, iSuppli estimates. This means that with subsidies from carriers, Apple will be selling the 8Mbyte version of the second-generation iPhone to carriers at an effective price of about $499 per unit, the same as the original product,” he noted.
In the first version of the iPhone, Apple was given a portion of the wireless carriers’ revenue from service subscriptions, however with the second-generation version; Apple is not garnering any service revenue, making it more imperative that the company cut a profit on the actual hardware through the carrier subsidies, iSuppli pointed out.
“Hardware is vital to Apple profits, valuation and revenue in the consumer-electronics and wireless communications realms. In fact, two-thirds of Apple’s revenue from the iPod still is derived from hardware, while only one third is from the iTunes service and accessories. The second-generation iPhone is no exception,” Rebello asserted.
In terms of margin, based on extensive teardown analyses of multiple products, iSuppli observed that Apple’s iPod and iPhone products are typically priced approximately 50% more than their BOM and manufacturing costs, therefore, with the iPhone 3G sold at a price of $199 and the estimated subsidy of $300, Apple will achieve an even higher BOM/manufacturing margin.
As with all electronic products, the 3G iPhone’s BOM costs will decrease over time as component prices decline: the BOM/manufacturing cost of the second-generation iPhone will decrease to $148 in 2009, down 37% from $173 in 2008, according to data from iSuppli’s mobile handset cost model, and if the 3G iPhone design is unchanged, the BOM/manufacturing cost will decline to $126 in 2012, iSuppli concluded.
© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.