3G iPhone – what does it cost Vodafone? (and others)

In the wake of the huge furore regarding Vodafone New Zealand’s iPhone pricing, let’s look at what sort of price Vodafone would be purchasing the devices from Apple for.

The Original iPhone

iSuppli garnered a lot of press with their estimate for Manufacturing and BOM (Bill Of Materials) for the original 8GB iPhone at $264.85.  This figure was arrived at before the devices were available, and turned out to be accurate, with a tear down of an actual unit coming up with a figure of $265.83.   This figure subsequently dropped to ~$220 with decreases in component prices over the life of the first generation iPhone, and Apple are more than likely to have garnered advantage from these due to the buying power the firm holds.

The 3G iPhone

The 3G iPhone has been widely reported to cost Apple significantly less, due to several reasons.  The first is the drop in component prices brought about by lessons learnt from the first generation phone, and due to the price drops that progressively occur with almost all technology.  The second is reasons of scale – Apple have been widely estimated to sell 16-22 million iPhones in 2009, and possibly as high as 45 million units according to Wall Street analysts PiperJaffray.

So what does a 3G iPhone cost?

iPhone Component Breakdown

US Dollars — Parts

$22.80 — 8GB NAND Flash Memory

$20.00 — Improved Touch screen $20.00 — Display

$13.50 — Application Processor

$5.00 — 1Gbit SDRAM – Mobile DDR

$15.00 — HSDPA Digital Baseband

$7.00 — 2 Megapixel Camera Module

$4.00 — WLAN chipset

$4.00 — Battery

$3.60 — GPS

$2.00 — Motion Sensor / Accelerometer

$4.25 — RF Transceiver

$1.89 — 64Mbit NOR Flash Memory, 32Mbit PSRAM

$1.80 –Charger (USB)

$2.00 — Bluetooth 2.0 + Enhanced Data Rate (EDR)

$127 — Total of Above Items

$37.16 — Other Costs

$164 — Total Bill of Materials (BOM) Costs (Direct Materials Only)

$173 — Total Bill Of Materials (BOM) and Manufacturing Costs

Cost to Cellular providers

Apple’s financial reports give excellent insight into their gross margins on their products, and their Q2 report had expectations stated of 33% gross margin.  The margin on the iPhone is reportedly higher with estimates agreeing around the 50% mark.   If we apply this to the above figure, we arrive at US$346 ($NZ461) for the 8GB iPhone.

However other reports have AT&T paying as much as US$325 subsidy for the iPhone, which put the price at US$524/$624 (NZ$698/831) respectively for the 8GB and 16GB models.  These are not confirmed however, so it is difficult to ascertain a final price

Summary

When compared to Vodafone New Zealand’s retail price of $979/$1129, the rumoured $698 doesn’t look so bad.  Using the calculated figure – $461 – it does.

Ultimately we won’t know until Apple’s 4th quarter financial results are in and further analysis can be applied, but until then – this is some food for thought.