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.
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.
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.
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.
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.
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.
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.
I think it's more a case of Nokia wasting money than Apple being cheap. I lost count of all the phone OSs Nokia was developing: Maego, Meemo, multiple versions of Symbian... and in the end they had to throw everything away and license Microsoft's OS to get something competitive. That's hardly a model of good R&D spending.
Agreed to this and all other comments. There can be no criticism of how much a company spends on R&D - spend tens of billions make a profit, you're doing good, but spend a couple billion and make billions in profit, your a genius. Apple is indeed getting the better bang for their buck over their competitors, that's for sure.
Overall, I think R&D costs is really a moot point, although its always nice to see corporations going above and beyond to push the boundaries of technologies, and develop new ones.
A lot of that distinction is just accounting. Apple under Jobs believed that the best "R&D" was done by the folks working on real, shipping products. I bet Ive's salary isn't counted as R&D, but surely that's a big part of his job.
Cheap relative to their revenue, $2.4 billion is still a LOT of money.
Bell Labs in 1982 had an annual budget of $1.6 billion which in 2012 dollars comes to about $3.6 billion.
I believe Xerox PARC had a relatively petite budget of $17 million or so in 1979, so incoming dollars are probably a very imprecise measure of R&D quality.
The article is not clear as to whether the mentioned spending is only Nokia's handset department. Assuming that's not the case then I don't think it's a fair comparison because Nokia's product portfolio is way bigger than handsets. It's just like comparing Intel's and Apple's R&D spending.
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.
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.
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.
>>"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.
My understanding is if Apple discovers the machinery to make their cases (or a part of their widget or whatever they want) doesn't exist, they'll pull out their checkbooks to make sure the machinery and factories get built.
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.
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?
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.
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.
Techically that'd be new revisions since the iPhone comes in multiple SKUs. I think there are 3 different storage capacities multiplied by 3 different radios (http://www.apple.com/iphone/LTE/) and 2 different colors so that makes it 18 different iPhone 5 configurations.
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.
You're over-simplifying what can't be over-simplified.
If you look at Apple's business holistically you'll know that their profits come not only from smartphone sales, but from a wide range of products. Do they have great profit results Q/Q and Y/Y in general? Absolutely. Does that mean others don't have the same kind of profit per smartphone unit sold? No. And that's the key difference between what we're saying.
While I agree with you in general, Apple charges the carriers much more than other manufacturers, to the extent that carriers' margins are knocked down really low, and Sprint was expecting to be profitable on the iPhone only a few years after launching it.
In fact, the lower the sales of the iPhone, the higher the margin of the carrier(assuming same number of handsets).
The carriers are rumored to be pushing back on the iPhone prices, but they know they need it or the competition will lap up the sales for the expensive data plans.
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.
They're at number 15, but I don't see any of their competitors in the smartphone manufacturing business above them. Now, do they spend more on PR? Yes, in fact, 3x as much. But look at the numbers yourself, they don't lie. Another article: http://www.usatoday.com/money/perfi/columnist/krantz/story/2...
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.
I believe what you're saying can be true, but when apple hires Foxconn to build their products, they should assume (and expect) that Foxconn treats their employees decently.
If I hire a company to write a piece of code, at the end of the day I'll care more about the quality than anything else. I will expect and hope however, that everyone who's working on it is treated fairly.
I believe Apple does a their due diligence on this when picking their partners. And regardless of that, it's mostly on Foxconn to do the right thing.
In every sentence I've seen this week that contained Apple and Foxconn the sentence becomes so much better and fairer when you replace Apple with 'Foxconn customers (Microsoft, HP, Dell, Apple, Samsung and others)'.
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...