iPhone 6s total cost of components costs $245

Comments

  • Leo Perry

    That’s $326 in Canadian dollars.

    As usual, Apple has the highest margin of all the smartphone manufacturers. I still don’t think that $899 is a reasonable price to pay.

    • birdman_36

      Yeah, the bottom may fall out for Apple at some point. Looks like they’re still going strong though.

    • It’s Me

      They do indeed have the highest margins, but estimates like this are always a very incomplete picture. First, they are estimates. Second, no assembly costs. Third, and most importantly, they don’t include R&D and customization. How many other smartphone vendors engineer their own CPUs? Or their own OS? Their own finger print sensors?Their own battery chemistry? Their own massive cloud infrastructure? Or spend millions (hundreds) on researching different materials to use? Samsung might be the closest in areas of investigation, but they offset those by selling the parts to others too.

      It’s easy to guess at the cost of buying the parts. It doesn’t reflect the other costs involved. Buying parts off the shelve is a lot cheaper than engineering your own, generally.

    • John W

      Yep, I’m not an iPhone guy but these are stupid… I don’t know why they keep doing them. If you get someone to build you a house it costs more than the sum of the parts… you have to pay someone to put it all together. It’s not a hard concept to grasp.

    • It’s Me

      That’s a great example. It would be like people looking at the estimate of only the materials to build a house and using that as the basis for how expensive it is compared to others. They’d ignore that you had to hire architects and engineers to design it, contracts to build it, buy the land and possibly clear it, run water and sewage and electricity, etc. Guesses at materials cost means nothing.

    • neo905

      I agree. This being brought up about Apple is lame click bait, pitch fork foolishness.

    • ArxRelis

      Construction builders =/= cheap Chinese labour. I think most understand they are miles apart in terms of cost.

    • opteron1983

      The comparison is still valid

    • ArxRelis

      It’s not a very realistic comparison in the case of cost arguement… The wage is fairly low in China.

    • Crossed

      Its slavery, not a wage.

    • John W

      It’s a comparison… it wasn’t meant to capture everything… obviously building a house is a lot different that a smartphone.

    • rick

      It gives a baseline. All the other manufacturers have the same consideration. They all do the same thing on a smaller scale.

      Don’t kid yourself – Apple is highly profitable with the highest mark ups. The only thing I don’t see noted that have a higher cost impact is that Apple does support their devices for a solid 3 years. But then again – see the previous note on incremental updates to OS and the fact that the three year old phone is simply a flagship from 3 years ago. meaning its easier to carry and support for apple then some one off mid tier android device.

      Apple can completely set its own road map given their size and business model. This too equals great cost savings (its a smart business model……..assuming you have the ecosystem to attract the masses which they do).

    • John W

      No one is arguing that they don’t have high mark ups… just that there are costs other than the parts.

    • Goran Mihajlović

      Assembly costs are likely almost completely unchanged from last year, so it’s likely around 9-12 bucks. Should they ever pay a minimum liveable wage, it could go as high as *gasp* 20 bucks. It’s easy to break down r&d into a rough estimate. They a expected to spend 8 billion for 2015, which is a small amount for the size of the company. This 8 billion includes everything from iphones to ipads to imacs to the EV they are apparently working on. Even if we go crazy and assume 2 billion for the iphones will be spent, at 250-300 million phones a year it too is barely 10 dollars a handset.

      So yes, the margins are ludicrously high and that’s why they have the large majority of smartphone profit share.

    • It’s Me

      Given the iPhone is far and away their main income generator, I would think that guessing that it takes only 25% of the spent is low-balling.

      No one is denying they have high margins but they could be higher. They could save even more money by using off the shelf parts like others, use someone else’s OS like others, rip up the code of conduct they impose on their suppliers for workers rights and pay and environmental impact and go to lowest bidder like others.

    • Goran Mihajlović

      Just because it’s a wild success doesn’t mean that it has to take up the lion’s share of r&d, and even if it were perfectly lined up (it’s not…battery chemistry is shared between all products, the iPad takes half the development costs for most internals in mobile plus ipods) you’re still looking at most 30 dollars, which is not the case at all. If tomorrow the iMac soared a in the years became most of the computer market, its r&d costs would remain unchanged. It does not automatically follow an you’re leaving out the amount of r&d required to make their other products just as well built. A I said, they also do othe stuff with the r&d like the rumoured EV and anything else they are cooking up.

      Most others have a code of conduct as well. It’s usually violated just like what happens with apple’s suppliers.

      Where they do use custom components, they make so much that it really doesn’t come down to being that much higher. The chips also go into non-iphone devices which further decreases the r&d burden in the cost. Putting out over 300 million devices a year that use a custom cpu for instance means it doesn’t justify 900 dollar phones from a hardware perspective.

      Saying that they could charge more than they do so be happy is not an argument that tends to be seriously made outside of the world of lobbyists. It’s a blown out name brand premium that is as always only partially justified.

    • It’s Me

      if the iMac soared to become their biggest source of revenue, then yeah, I expect they would shift more R&D there to support that. Whether the iPhone is popular or not isn’t the point. The fact that it generates the vast majority of their income is. Obviously they will invest it correspondingly.

      Apple’s code of conduct and vendor behavior is well investigate, both by orgs they hire and independent bodies like Fair Labour Association and Green Peace and have dropped suppliers for violating their code of conduct.

      And yes, Apple’s scale allows them get low pricing on the custom parts they design. They would be even lower if they simply used off the shelf parts and spread those out into all of their devices.

      I never said they could charge more. I said they could spend even less if the cost of parts were the main concern.

    • Goran Mihajlović

      No, it is not obvious that they will have to invest in it correspondingly if they don’t need to. This becomes even more clear when their iphone sales growth percentages outstrip that of R&D increases. Even if we do make that assumption, the r&d cost comes to an estimated 20 dollars a phone. That’s 265 dollars and accounts for your points about why 245 is so inaccurate.

      Yes, and so do most others drop suppliers for violating codes of conduct, and they magically keep happening again and again. The clothing industry has been at it for 25 years, and each time everyone is shocked that it happened, and will do more to make it stop, and it still happens. The electronics industry has been at it for just as long as well. For example, Apple claims success that ever fewer workers are working more than 60 hours a week, while ignoring that most of its workers still break the 49 hour limit imposed by Chinese law. They pick random benchmarks that are still breaking labor laws and tout them as they are ethical. Even Apple’s own internal audits show there has been no % decline in worker standard violations since 2009.

      Indeed you never did, that’s my bad. That’s still a dubious claim as it leaves out royalties that would also be paid out. There are other advantages to going fully in-house besides economy of scale and full integration.

    • rick

      “How many other smartphone vendors engineer their own CPUs? Or their own OS?”

      Economy of scale – is all that matters. If you’re selling as much as Apple is it actually makes more sense to design or build some of this themselves. Apple is smart – they’ve likely research the most cost effective approach. So they do their own processors, but not their own screens. And as far as own OS or cloud infrastructure – BB does this, but its not getting them very far. Point being, its probably not as cost prohibitive as you think particularly since iOS has been a very small incremental update annually. Everyone and their dog has cloud services and unlike alot of others, Apple limits capacity and then has a charge model. So not like they’re having to build that into the phone.

    • It’s Me

      Economies of scale would then say that buying off the shelf parts and using a commodity OS would save them even more money providing even higher margins.

    • rick

      Economies of scale show that apple has such a high volume of devices it makes sense to not pay someone else to do these pieces. Its more profitable to do it themselves. It also supports the rest of their business model. How do you support a 3 year old iphone if you don’t control the OS? If you’re not supporting it, then not much reason to pay an apple premium then right.

      Point is when you get to a certain point, its better business sense to cut out the middle man if his cost to supply and make a profit is too expensive or doesn’t support the rest of your business model. Just because you’ve bought off the shelf parts does not mean you get to bypass r and d, OS developement, all the rest of it. You’ve only saved on manufacturing of discrete components. Nothing more, nothing less. If you’re selling 50 million phones over its lifespan, then might be cheaper to manufacture some of the discrete components yourself.

      BB no longer has economies of scale. we’re saying the same thing.

    • It’s Me

      Economies of scale show that apple has such a high volume of devices it makes sense to not pay someone else to do these pieces. Its more profitable to do it themselves. It also supports the rest of their business model. How do you support a 3 year old iphone if you don’t control the OS? If you’re not supporting it, then not much reason to pay an apple premium then right.

      Economies of scale would dictate that it would be in Apple’s interest to have someone else manufacture their components. It does not dictate that it would be more cost effective to design and engineer their own CPUs. Using off the shelf commodity parts is, by definition, a larger pool that using your own, and so economies of scale would apply much more. Hence it would be cheaper.

      As for the OS allowing them to support it better, sure, that’s true. But that’s not the discussion. the discussion is cost and it would be undeniably cheaper to use a commodity OS. You might not be able to support it as long and your customers might not be as willing to choose it, but it would be unquestionably cheaper.

      The only thing economies of scale means is that yes, if cheaper for Apple to go on their own than it would be for someone else with smaller lots. But the biggest lot and therefore the biggest scale, is commodity components would would make it an even cheaper option for Apple that doing it themselves.

      Does Apple’s choice to own the stack help sales? Obviously. Does it mean higher costs? Obviously.

    • Crossed

      Well lets be real. Assembly costs are almost nothing because of slave labor in Asia. There’s also a discount when buying those parts in bulk so I would say the cost of the parts is actually less than that.

      All they really pay for is parts, shipping, R&D, and marketing.

    • Nadefrenzy

      Sure, but with nearly 200billion in cash alone at their mercy, it’s not difficult to see that Apple is making a tremendous profit, and that they have giant margins. I don’t like it, especially not their pricing in Canada, but it’s all just business I guess.

    • Columbo

      I overall agree with your post, one small correction, it does indeed include assembly costs (look at the top item in the bar).

    • Peter

      You make me laugh,on one hand you choose to look at all the variables that go into producing an iPhone and defend Apple but on the other hand (through our previous conversations) you rip apart the Canadian Telcos when they come out with their plans by accusing them of overcharging yet for that example you completely ignore ALL the other variables involved with providing these networks. Thanks for the laugh though.

    • It’s Me

      It’s only funny as a comparison of one is ignorant of the differences in the scenarios. Apple doesn’t compete in a protected, coddled environment. Apple is in a hypercompetitive field where any misstep can lead to failure. Our carriers are protected and coddled and can screw their customers without any repercussions as long as they all do it together.

      The funny part is realizing you think the two scenarios are at all comparable.

    • Peter

      Are you saying Telco’s aren’t in a hyper-competitive environment (29+ different carriers across Canada)? Are you really saying they can screw consumers and get away with it (Rogers clients are leaving, Bell is constantly losing in lawsuits)?

      In terms of collusion, could you not say there is collusion in the handset market as well, with everyone coming out with $800+ devices at the same time even though the cost to build those devices are $245 as this article points out? And are you sure there are no risks in investing billions in networks? Come on now get serious.

      You constantly state we are being screwed but yet have no problem defending a $1,000 Apple device because it has the latest and greatest, but guess what? you also need the latest and greatest networks to use it on and that as well costs money, and it is often more than we want to pay but that doesn’t mean we are getting screwed. I suppose you would be fine with using your new iPhone on a $35 all in per month CDMA plan.

    • It’s Me

      Hyper competitive? No, I’d say they are in a barely competitive market. Of those 29 across Canada only 3 were gifted national coverage. Guess which 3… In the few and only areas where they face even a modicum of motivated competition we immediately see massively lower prices. Manitoba, Thunder Bay, Saskatchewan, and even Quebec to a lesser degree. Where there is none but the 3, prices go up and up and only up.That’s the effect of competition and the effect of no competition.

      And collision in the handset market? The plethora of less expensive and still very capable devices shows there is tons of competition there. Meanwhile, the only national carriers and charge the same, provide the same and screw the same.

      And sure, there is risk in building a national network. That’s somewhat mitigated by government regulation that was meant to take as much risk out as possible early on or by forbidding foreign competition, gifting spectrum allocation only to a select few. But risk of customers opting for another national carrier? No, there’s no risk there, which our lowest in the world churn rates proves. Why should a customer leave one only to pay the same for the same from another? There’s no risk amongst national carriers and they have fought tooth and nail to keep it that way, even getting in bed with their hated unions to spread FUD about another big carrier moving in.

    • Peter

      We’ll agree to disagree on this as usual. And good chatting with you again.

    • MatroXX

      Well who’s gonna pay for those solid wood tables and white glowing walls in the store? Never-mind the 100% cotton blue t-shirts!

  • marshallpower

    Yeah I should believe in those numbers with my eyes closed.

  • Goran Mihajlović

    Hey everyone, “manufacturing” is in the bill of materials provided. It’s at the top and part of the 18 dollar cost of testing, assembling, and supporting materials.

    • h2oflyer

      Good catch… Any what’s the guess the cost to get it it from the factory door to the Apple store in the Eaton centre.

  • Garrett Cooper

    I was watching the announcement and thought the new 6s
    actually looked like a decent upgrade. It’s been 5 years since I rocked an iPhone
    and I’m due for a new one, I was legitimately considering going back to iOS.
    Then I saw the CAD pricing, what a joke. A 64GB ON CONTRACT is nearly as much
    as the rumored Nexus 5X OUTRIGHT. I try not to bash one device over another,
    but that’s just ridiculous.

    • blzd

      You mean you’re not willing to pay over $1000 for a device that you will get rid of in a year or two?

      The cost of a fully loaded top of the line laptop, or a smartphone that barely changes anything compared to the last 3 years. Very tough decision.

      /s

    • barrist

      If you got rid of it in a year, you’d probably get 75% of the value on the used market. they hold their value unlike other phones.

  • HeyStupid

    They need those astronomically high margins to pay for the new anus shaped HQ they’re building in California.

    • Brad Fortin

      I wonder what you’re thinking about all day… probably anuses.

  • Elton Bello

    Disgraceful from apple…

  • Brad Fortin

    I love how these numbers are always laughably off.

    A newly-invented pressure-sensitive 3D Touch sensor that’s never been manufactured before increases the cost by less than $10? Sounds like Teardown dot com is pulling some numbers out of their you-know-where.