Apple spends $171 to build iPhone 4, says expert

Apple Inc.’s iPhone 4 costs the company about $171 to build, a Wall Street analyst said today, giving the new device a profit margin of more than 61 per cent.

Materials and parts for the 16GB iPhone 4 total $171, said Brian Marshall of BroadPoint AmTech, while non-hardware costs such as licensing fees and set-asides for warranty claims add another $35, bringing Apple’s total cost to $208. The 32GB iPhone 4, meanwhile, has a cost of materials price tag of $195, and a total cost including non-hardware fees of $230.

“The 16GB iPhone 3GS had a BOM [bill of materials] of $185 last summer, so the cost came down a little,” said Marshall. “Apple is being very aggressive on its suppliers to lower BOM.”

Assuming Apple receives $529 for each 16GB iPhone 4 and $629 for each 32GB model — those numbers include the subsidies that mobile carriers pay Apple — the lower-priced iPhone 4 boasts a gross margin of 61 per cent while the 32GB device sports a gross margin of 70 per cent.

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Apple sells the 16GB iPhone 4 for $199, and the 32GB model for $299. It does not, however, disclose payments it gets from AT&T or other carriers, leaving analysts like Marshall to guess at the total dollar amount it receives for each iPhone.

“The margins will actually uptick once the iPhone 4 ramps to volume production,” Marshall said.

Marshall’s analysis includes components and the direct non-hardware costs, but it doesn’t take into account research and development, marketing or labor costs. His estimate does include manufacturing and packaging costs, however.

The single most-expensive part of the iPhone 4 is the revamped display, which Marshall pegged at $25, one dollar more than the estimated $24 Apple pays Samsung, Toshiba and others for 16GB of flash memory. LG Display is the most likely supplier of the screen, which for the first time is a sealed unit that includes not only the display but also the touchscreen component.

The memory in the 32GB version of the iPhone 4 sets Apple back $48.

Apple CEO Steve Jobs touted the iPhone 4’s screen — dubbing it the Retina display — when he unveiled the new model three weeks ago. According to Apple, the iPhone 4’s three-by-four-inch display packs four times as many pixels as the iPhone 3GS’s screen.

Research firm iSuppli Corp. estimated the BOM of the iPhone 4 at $187.51 for the 16GB model, and like Marshall, said the most expensive part is the display. El Segundo, Calif.-based iSuppli estimated that the Retina display costs Apple $28.50.

According to Marshall, the A4 application processor, a system-on-a-chip designed by Apple but made by Samsung Corp., costs approximately $10, while the camera module — which powers both the 5-megapixel camera on the back and new 1.3-megapixel front-facing camera — also runs $10.

For its part, iSuppli estimates that the A4 costs $10.75.

Apple has trimmed its iPhone costs by 29 per cent since it introduced the smartphone in 2007. That year, iSuppli estimated the BOM of the 8GB first-generation iPhone at $263.83, giving Apple a profit margin of nearly 56 per cent.

Marshall said he expects that the more expensive 32GB iPhone 4 will account for 70 per cent of Apple’s unit sales of the new model.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg’s RSS feed. His e-mail address is [email protected].


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