The $600 iPhone: One expensive blade (as in razors and blades)

Summary:According to Jagdish Rebello, director and principal analyst with iSuppli, the sky-high prices of Apple's 4GB and 8GB cell phones can't defy gravity for very long. According to News.

According to Jagdish Rebello, director and principal analyst with iSuppli, the sky-high prices of Apple's 4GB and 8GB cell phones can't defy gravity for very long. According to News.com's Michael Kanellos:

The consulting firm on Thursday released an analysis of what the total component budget will likely be for the Apple iPhone. The $499 iPhone, which comes with 4GB of memory, will likely have a component budget of $229.85. Assembly costs will raise the total manufacturing price to $245.83, according to the analysis.

Meanwhile, the $599 iPhone, sporting 8GB of memory, will have a component budget of $264.85, with a total manufacturing cost of $280.83, according to the report.

The large margins make price cuts inevitable.

"They will cut prices later on," said Jagdish Rebello, director and principal analyst with iSuppli. "It is hard to imagine anyone else getting 50 percent margins for long."

Other manufacturers of high-end multimedia phones get about a 20 percent margin. That would put the retail price of an 8GB iPhone at around $350 without subsidies from the cellular carrier.

Rebello's comparison to other high-end multimedia phones certainly begs the question of whether or not the novelty, user interface, and unique ability (amongst phones) to play iTunes Music Store-purchased content, is worth such an incredible premium when compared to something like Motorola's Q which, although no star performer on the UI front (or other fronts like battery power), meets or beats the iPhone in terms of what it can do (ie: third party software can be loaded on it, it can be connected to corporate email) for the going rate of $99. I'm sure some would say "Yes, it's worth the premium."

Speaking of that premium, I think what you're finally seeing is Apple's high margin razors and blades strategy coming to fruition. As I explain in a post over on Testbed, you may be naturally inclined to think of the iTunes Music Store purchased content as the blade and an Apple piece of hardware like an iPhone or iPod as the blade since, like toner cartridges going into printers, it's the songs and movies that go into the device. But in reality, it's the other way around since the content actually outlives the devices. Sooner or later, Apple's FairPlay digital rights management system would lead Apple to selling higher margin blades to apply to the content collection razor (as well as companion blades like the $300 AppleTV).

Topics: iPhone

About

David Berlind was fomerly the executive editor of ZDNet. David holds a BBA in Computer Information Systems. Prior to becoming a tech journalist in 1991, David was an IT manager.

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