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.”
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