back to article iPhone 5 sleuth work points to $199 component costs

Each iPhone 5 costs Apple $207 to make, it has been estimated. Actually, make that 'guessed'. Market watcher IHS iSuppli hasn't had an iPhone 5 to take apart yet, so it's presumably had to work from the component photos leaked onto the internet over the past few months and from its knowledge of the phone's capabilities and the …

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UK costs

It's worth bearing in mind that the costs in the US are subsidised by the carriers (mobile phone networks) - the price for an unlocked phone is apparently $649 (£400). However, the mobile phone networks soon recoup the costs - for the locked phone there's a choice of three carriers for a two year fixed contract - one's minimum price is $59 pcm (~£36.38), the other two offer a minimum price of $89 pcm (£54.72). Ouch.

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Trollface

This is a troll

Why don't people just add an SD card at a fraction of the cost, like I do with my Android phone?

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Anonymous Coward

Hardware's cheap, licenses, marketing, R&D and, lawyers are expensive.

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Anonymous Coward

Time and time again we will get into these stupid discussions about component costs.

Products cost money to design, write software for, produce, ship, distribute, support, market etc.. Plus you are trying to make a profit on it so you can grow your business and keep shareholders happy.

A CD costs pennies to make, but sell for more as sound engineers, programmers, producers, mastering engineers, musicians, record company employees don't all work for free.

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"Hardware's cheap, licenses, marketing, R&D and, lawyers are expensive."

Don't forget the logo. It adds hundreds of dollars to the cost of any item

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Sorry, but any large-scale product that isn't making about 50% markup is probably going to be short-lived.

It's simple business. It takes people a lot of time to get their head around it but that Coke you bought in a pub? It probably cost about 10p to pour, even it if wasn't watered down horrendously. Shocked? My father-in-law used to run several popular pubs and a restaurant in Cornwall for years and they would make more money out of the fruit machine in the pub than just about anything else (mainly because it's almost all profit). That hot-dog stand you bought a hot-dog from? You just gave him about five times what it cost him to make that hot-dog.

It took me years to believe it, back when I was self-employed, but the people who told me are right. You charge what people will pay and if they don't complain that it's steep, you can charge what you like. Selling items? Sell them at 50% markup to start with and adjust accordingly. Making money from eBay? Check exactly what you set as the minimum because, believe you me, you will make a loss if you just set it at a price you "think" is right (after packaging, time, printing out invoices, driving to the post office, posting, etc.)

As a full-time employed person, with good raises every year, I've still not managed to claw my way back up to what I was earning when I was doing the same job, self-employed, setting my own prices, working for the same places, and only working 2.5 days a week. Nothing to do with inflation, economic hard times, customer availability or anything else (I am still as in-demand as previously, and I only changed because I needed more guarantee of stability for a mortgage/family).

Business is about profit. That's not a crass, over-arching target to make all businessmen ruthless bean-counters. But if you're making a product and NOT selling it for twice what it cost you, you're playing at business. You need to fund the R&D for the next product, pay wages even if sales drop off, expand, source stock, advertise and everything else EVEN IF you're selling millions of your current product. It will not last and if you don't "save" as conscientiously as a person with savings, then you won't be able to stay in business for very long.

Seriously, people. Cover stock. Cover assembly. Cover testing. Cover distribution. Cover all the things to get the product out there. Then double the price when you actually sell it. Anything else is just selling your company short and doing your staff a disservice.

You really think it costs MacDonald's 99p to make that cheeseburger? If it's more than 40p per unit, I'll be amazed.

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Anonymous Coward

>Products cost money to design, write software for, produce, ship, distribute, support, market etc..

So in effect, the first iPhone off the line costs tens of millions of dollars to make, all subsequent ones cost $207

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Pharmaceutical

Pharmaceutical companies are the best example - to make the first pill/tablet could cost £100 of millions, every pill/tablet made after that cost less than 1p

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Facepalm

"any large-scale product that isn't making about 50% markup is probably going to be short-lived."

Yes, I remember the demise of the Kindle well. Selling the base unit at cost price really hampered Amazon, preventing them from doing R&D and thus killing off any possibility of touchscreen versions and colour versions.

Oh, wait - that didn't actually happen, did it?

It's called a loss leader. Amazon make their money from the Kindle by taking a cut of the book sales, just as Apple take their cut from the App Store. I wouldn't expect Apple to sell the iPad or iPhone as a loss leader, but they could definitely sell it for significantly less and still rake in cash hand over fist. It wouldn't be a bad move either - if they cut the price of the iPad by, say, £100 across all lines they'd lock up the tablet market completely.

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Re: "any large-scale product that isn't making about 50% markup is probably

You said it yourself: A loss leader.

Fine if you are going to break into a new market and capture a huge portion and provide a boost to your other businesses. MS do it all the time (e.g. XBox is pretty non-profitable and always has been). That's not what we're discussing here, because such companies are putting HUGE MARKUPS on other things that are giving them the money to voluntarily do that.

It's like saying that giving out coupons proves me wrong. It doesn't. You get the ability to give out coupons BECAUSE you've put a markup on your previous and current normal products that will sell whether you give out a coupon or not.

Apple aren't breaking into a new market. Apple aren't trying to entice people to try something new that they might want to pay for. Everyone KNOWS what an iPod/iPad/iPhone is and does. Of course you can slice the price to nothing, but then you WON'T MAKE A PROFIT and where else are you going to. Amazon made a profit by selling books to the people with their subsidised devices while also making 100's of times that profit from their core business. This is Apple's core business now, and they already do sell content on all their products, as an integral part of their business, and still sell their products at huge markups (Why? Because people PAY that markup! As I said, if they'll pay it without grumbling, you'll do it! Want an example of grumbling? MS's recent new hardware).

A better example for yourself would have been the console markets (where Nintendo, who have NEVER sold at anything below profit have only just made their first loss ever in 120 years!) which fluctuate madly and are filled with below-cost-price hardware now. When XBox's first came out, people were ripping the drives out of them and turning them into cheap PC's!

You will price markup on your best-sellers to be around 50% at least. Apple do slightly more than that, I should think. And then you can give away whatever sidelines you want until they are an established business BECAUSE you were making as-much-again of your costs on every device you sold in pure profit prior to that. And, guess what happens when something like the Kindle takes off? The early models are "phased out", the stock is shifted, and then the newer models make them profit. Shocking that.

If Apple cuts the cost of the iPad by £100, it'll sell slightly more. We don't know how much without them actually doing it. I still wouldn't touch it, for instance. But will it sell enough compared to not doing so and selling less models at that higher price? Very, very doubtful. Apple can't capture the market. At one time they WERE the market, in smartphones, tablets and music devices. That's no longer true. The market doesn't stay captured for long and you better hope to come out of it with money on the other side or you lose once the competition catch up (a year or two at best). And the best way to do that is to either do a small loss-leader as a secondary product while generating tons of cash elsewhere on your huge markups, or to make sure you sell at a normal, business mark-up all the time.

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Re: "any large-scale product that isn't making about 50% markup…"

I wouldn't expect Apple to sell the iPad or iPhone as a loss leader, but they could definitely sell it for significantly less and still rake in cash hand over fist.

Or they could sell it for what they currently do and make billions and billions. One of these approaches is more appealing to shareholders…

Besides, I thought people didn't buy Apple for ideological reasons, reducing the price wouldn't make those people buy.

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"I thought people didn't buy Apple for ideological reasons"

This is broadly speaking true. On the other hand, one of the more commonly cited ideologies for not buying Apple is because they hugely overprice their products to exploit fashion victims, or words to that effect.

Also, I suspect the scenario which would play out in many other cases would run something like this:

"Apple are the 21st century equivalent of Hitler!"

<passes sign indicating £100 price cut on all iPads>

"Sieg heil! Sieg heil!"

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Gimp

170 dollars for 48GB

Is that actually dearer than a PAYG mobile data tariff per GB?

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Holmes

So there's a sound financial reason why Apple has such a cash pile?

Namely, they sell vast quantities of their product at a huge profit (even allowing for the other myriad costs not stated here).

It's a relief to know there's a simple explanation.

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Anonymous Coward

Re: So there's a sound financial reason why Apple has such a cash pile?

Nowhere does this calculation take into account the R&D, design, development, marketing, shipping, support and other costs.

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Anonymous Coward

@AC 10:20

That's why I said "other myriad costs not stated here" - that alludes to all the other overheads.

It cannot be disputed that Apple make very large profits.

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Re: So there's a sound financial reason why Apple has such a cash pile?

"Nowhere does this calculation take into account the R&D, design, development, marketing, shipping, support and other costs."

It does for the component suppliers, actually, because these component prices are the commercial estimates for devices profitably sold to Apple by the manufacturers. The display tech is bought in, the "unique Apple processor" is actually primarily courtesy of ARM, and undoubtedly manufactured by the likes of TSMC, the LTE baseband is from Qualcomm, and I'm sure the regular small band of electronics and memory suppliers provided the rest.

Apple's idea of R&D appears to be the same sub-component assembly of other phone makers, their own flavour of *nix masquerading as IOS, and lots of lawyers patenting the bleeding obvious. Now, accounting wise Apple's "research" certainly comes after the gross profit, but that's true for everybody, and the gross profit on a device remains the fundamental basis on which all other corporate spending is based.

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Boffin

A long time ago in a data centre far away the hardware made up 90% of the cost of IT.

Now it's typically only 10%.

Consumer device are different, but still there is more to pay for than just the hardware.

And remember that while Apple (et al) may set a retail price, the shop still has to make a margin so the shop won't be buying them from Apple at that price - probably nearer half the price.

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You too obviously haven't seen an Apple trade price-list.

The dealer margin is pitifully small.

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Anonymous Coward

$207 in total. iSuppli estimates that figure rises to $217 for the 32GB model and $238 for the 64GB.

Apple wants £529, £599 and £699 for the three versions, so you can see how much its cashing in on the extra Flash, even if iSuppli's numbers are broadly right.

No we can't because materials are listed in dollars and phone prices are listed in pounds

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Facepalm

Multiply by 1.6

Simples.

Means that $170 for 48GB was wrong though, That's £170 = $272.

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Re: Multiply by 1.6

Except the price in pounds includes VAT, currency hedge costs, shipping and import costs. The cost in dollars is likely to be around $210-220

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Anonymous Coward

Anyone who thinks the margins are huge should try to design their own electronic product, see how long it takes them. They cost a lot to design and you also have all the mandatory tests, FCC, CE and so on.

Nobody in the industry works for free.

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Coat

Re: AC

Easy-peasy, I'll just copy the iPhone.

What could possibly go wr.......

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WTF?

Markup?

I read something saying that they're ALL at it, not just Apple. Apparently they're all selling products for MORE than the purchase cost of their component parts.

The world needs to wake up and see what's really going on!

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Anonymous Coward

Re: Markup?

Back in the day, a million years ago, a friend of one of the Aston Martin directors asked if he could have a car "at cost", the director replied, "of course, but it will cost you more".

Apple have a nice product with (approximately) double the mark-up of other manufacturers, while people are willing to pay, they will be a successful company, good luck to them, I'm sure their customers are very happy, I'm getting an iPhone 4 cast-off free from someone upgrading to an iPhone 5, will be fine on my £10 monthly tariff, I wouldn't spend a lot of money on a phone (my xperia play cost £40 + £12 to fix off eBay, I'll probably sell it for at least that), the more phones Apple sell, the more second hand are available, the cheaper phones get generally.

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Gimp

isupply forgot one important item

How much does the magical iPixie dust cost, it's at least a couple of hundred ( insert currency here )

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