IHS iSuppy have done a virtual teardown of the Apple iPhone 5, and they are the establishment that does Bill of Materials (BOM) estimates with confidence. There was one other preliminary BOM estimate before, at $168, which we notes sounds suspiciously low to us, considering this is the third year since a thorough redesign, bringing with it a new chassis.
Indeed, IHS iSupply estimates that the components in the iPhone 5 cost Apple $207 to build the handset, higher than the $188 of the iPhone 4S last year, which was using the body of the iPhone 4. The difference comes from the sophisticated multiband LTE radio from Qualcomm that costs $34 now, compared to $24 for the iPhone 4S radio, and, of course, the screen, which uses the novel in-cell touch packaging, costing $44 to Apple, due to the complicated production tech and low yields. Samsung has been using similar packaging, called on-cell, for its Super AMOLED displays since the first Galaxy S, and in-cell is the next step in that evolution.
Hence, Apple won't make as much money from the iPhone 5 as it did from the iPhone 4S last year, but with time display yields will improve, the component prices will fall, and Apple will still be selling it north of $600 to carriers and consumers alike. Plus, it is not that a $20 difference to build the iPhone 4S when it launched last year, compared to the iPhone 5 now, will knock the bottomline off-kilter, considering how much more iPhone 5 units will sell due to the redesign and the LTE connectivity. As for the LTE radio inside, IHS confirms out analysis on the carriers that will be compatible with the iPhone 5:
We believe that Apple is implementing LTE in a particularly novel way. Apple ideally would like to sell one iPhone in all markets. However, there are so many different LTE frequencies that must be supported around the world that this has become a difficult thing to do. For most smartphone manufacturers, the solution is to build different variations of their smartphones for each carrier, so that they won’t spend extra money on superfluous components. However, this is not the Apple way.
Instead, the Apple way is to pack all of the features needed to support as many carriers as possible with a single product. Still, that will be tough to do in this situation. For now, IHS believes there are at least two different versions of the iPhone 5—each with multiband filters that will allow Apple to support as many global markets as possible with as few versions of the product as feasible. In some ways this is an expensive way to do business, but by maintaining the fewest numbers of variations possible, Apple is playing to its strength in product design
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So, to a $207 BOM, which includes manufacturing, we have to add Apple's operating expenses like Selling, General&Administrative and Research&Development, which historically hover a bit below 10% of the revenue.
Assuming $649 ASP for the iPhone 5, we get at around $270 total cost per iPhone, which still leaves Apple with about 140% profit per unit, and we are talking about the least expensive 16GB version here - on the 32GB and especially the 64GB units Apple makes much more. Well, it is not exactly cocaine profit margins, but still remains the most profitable piece of electronics in history.
Daniel, a devoted tech writer at PhoneArena since 2010, has been engrossed in mobile technology since the Windows Mobile era. His expertise spans mobile hardware, software, and carrier networks, and he's keenly interested in the future of digital health, car connectivity, and 5G. Beyond his professional pursuits, Daniel finds balance in travel, reading, and exploring new tech innovations, while contemplating the ethical and privacy implications of our digital future.
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