iPhone 5 16GB costs an estimated $207 to build

iPhone 5 16GB costs an estimated $207 to build

Summary: A 16GB iPhone 5 that Apple sells for $649 only costs the company an estimated $207 to manufacture. Apple also charges an incredible $100 premium for only $10 worth of NAND storage.

TOPICS: Apple, Hardware, iOS, iPhone

According to market research firm IHS iSuppli, a 16GB iPhone 5 costs Apple an estimated $207 to build, a slight cost increase over the iPhone 4S.

The total hardware inside a new 16GB iPhone 5 is estimated to cost $199, and the report adds another $8 manufacturing costs, bringing the total to $207. Contrast this to the off contract price of $649 that Apple charges for the handset and you can see how Apple keeps the dollars rolling in.

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If these figures are in the right ballpark -- and they seem good to me -- the hardware components to make a 16GB iPhone 5 costs Apple some $11 more than the parts to make a 16GB iPhone 4S. Much of this cost increase is down to the addition of 4G LTE technology, which has driven up the wireless technology costs of the iPhone 5 to $34, compared to about $24 for the iPhone 4S.

"With the base model carrying a $199 BOM, the iPhone 5’s components are expected to be slightly more expensive compared to the iPhone 4S model," said Andrew Rassweiler, senior principal analyst, teardown services, for IHS. "The low-end iPhone 4S with the same memory density as the base-model iPhone 5 carried a BOM of $188, according to a preliminary estimate issued by IHS in October 2011. While the price of some components, such as NAND flash, has fallen during the past year, the iPhone 5’s overall BOM has increased mainly because its display and wireless subsystems are more expensive compared to the iPhone 4S."

The new 4-inch screen is also pricier, although not by much. The new screen, featuring in-cell touch sensing, only costs $44, compared to $37 for the iPhone 4S display, which featured a separate touchscreen element.

"The iPhone 5 makes a big evolutionary step in technology that we have not seen elsewhere with the use of in-cell touch sensing," Rassweiler said. "Most other smartphones LCDs use a completely distinct capacitive touchscreen assembly that is physically separate and placed on top of the display. The iPhone 5 partially integrates the touch layers into the display glass, making the product thinner and reducing the number of parts required to build display that senses touch without the need for a separate capacitive touch layer."

Once again, Apple -- like Google and Amazon -- is charging a premium price for extra storage. If you want to upgrade from the 16GB base model to the 32GB iPhone 5, this will cost you an extra $100, but the additional flash storage only costs Apple $10. If you decide to splash out and go for the 64GB model instead of the 16GB base model, you'll be paying a whopping $200 premium for $29 worth of NAND chips.

Sterne Agee analyst Shaw Wu believes that Apple will sell some 27 million iPhones for the September quarter, and that this will rise to 46 million units during the December quarter.

"We continue to believe many underestimate iPhone 5 in that it is a significant update and will drive a powerful product cycle," writes Wu in a note.

Wu believes that Apple could sell more iPhones but that supply constraints for the new in-cell touchscreens will be a limiter.

Image source: IHS iSuppli.

Topics: Apple, Hardware, iOS, iPhone

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  • Don’t Forget, They Have To Fund All Those Lawsuits

    You’ve got to add another $200-300 for sheer “Intellectual Property” overhead alone.
    • The SECOND, and all subsequent, iPhone 5 cost $207 to build

      The FIRST one costs a billion or so. The A6 processor alone probably took several hundred million dollars, if not much more, to develop. Remember, it's not a Cortex, but an Apple original implementation of the ARMv7 instruction set. When you add in all the other development costs, it adds up to way, way more than $207.
      • Well, yeah, it cost a lot to develop

        It sure did, but I hope it's more reliable than the old PowerPC chips. I could walk up to any Mac back then and lock the thing up by pushing three keys on the keyboard and clicking the mouse at the same time.

        There's a reason Apple switched to Intel back in the day. But you do have a point, the R&D that went into that chip is real high.

        However, you distribute the cost of that research across every single phone sold, and you probably come up with an extra $10 on the price listed above. Apple, on average, charges a 100% profit margin. Meaning, they charge double what it costs to make each shiny gadget.
        • Apple would kill your mother for 100% margins.

          Gross margins for the entire company were 47% last quarter. iPhone 4 is about 50%, the new iPad about 34% This quarter they'll take a hit on GM, but that's the price of a new release.
        • Can anyone tell me what is wrong with a 100% profit margin?

          "Apple, on average, charges a 100% profit margin"

          So? As long as people are willing to pay what Apple charges, there is nothing wrong with making a 100% or even 1,000% profit margin.

          There is absolutely no economic sense in charging a dollar amount based on your costs. You charge a dollar amount that is based on maximizing your profits. The only way you could argue that Apple is charging the wrong price is if you could show that by cutting the price by x%, they could increase sales by more than x% (ignoring overhead costs). Or, maybe Apple should raise their price by x% as long as it doesn't decrease sales by more than x%.

          You start down a slippery slope when you start talking about a company making "too much" profit. Our entire free market depends on companies trying to maximize their profits. Note that this doesn't mean the market isn't sick. I personally think the smartphone market IS sick (and the tablet market is VERY sick) but that isn't Apple's fault. Apple has to be anti-competitive. MS has to be anti-competitive. AT&T has to be anti-competitive. Otherwise they are in breach of their fiduciary duties.

          As soon as you realize that none of the companies are in business to help us consumers, everything becomes much more clear.
          • Well, duh

            Of course they should maximize their proffits. Doesn't mean I have to like it as a consumer. I'd much rather buy something less expensive that does what I want that's constructed with high quality standards.

            The Galaxy Nexus is pretty sweet, and costs something like $300 less. I'll take that, over giving Apple more cash, thanks.

            I was only pointing out that they have a real healthy profit margin, which is why their prices tend to be higher than average, and that's ONE of the reasons I tend not to buy their gear.
          • But your choice has nothing to do with Apple's profit margins

            "I'd much rather buy something less expensive that does what I want"

            But this has nothing to do with profit margins, this has to do with you being an intelligent consumer. Put it this way, if the $649 iPhone 5 actually cost Apple $600 to make, would that change your mind about buying the $300 Nexus 7? If so, why? If not, then Apple's profit margin is irrelevant to your decision.
          • touche

            Great point! I love rational argument! :-) I guess I should clarify--by narrowing Apple's profit margins, they could charge less for their devices, thereby making them more appealing to me. Perhaps it would even broaden the audience, who knows?

            Again, great point.
          • Me too

            "I love rational argument"

            There is so little of that here. Too quickly people revert into telling others to "shut up".

            "Perhaps it would even broaden the audience"

            Apple does something very smart. Instead of designing a "low-end" model to broaden the audience, they just keep selling last year's model at the "low-end" price point. Brilliant because by releasing half the number of models (at least) as the competition, they save a lot on overhead. They learned that trick from MS when MS slashed the price of an XP license so it could be installed on netbooks. Very very smart of MS and smart of Apple to copy MS.
          • Agreed

            Good points all (again). It is a very smart srategy.
          • I disagree with "low-end" price point

            I don't think Apples knows what a "low-end" price point is to be fair.
            None of their iPhones, even the older models, are competitively priced when stacked against similar Adroid based phones of similar specs. ;)
          • Regarding "I disagree with "low-end" price point

            Actually, Apple does know the the "low-end". Just check the history of the initial iPad pricing. The predictions were that they would come in at $1000. The base model price was half the market estimates. And yet they make 'insane margins' when compared to everyone else.
          • Applause!


            Your being especially pithy. Keep it up as you can be be both brilliant and infuriating!
        • dex

          100% profit margins is impossible unless the product costs Apple $0 to manufacture. 1000% profit margins means Apple would make 10x as much as the consumer pays for the product lol. In reality, Apple has close to 70% margins on the iPhone, and about 50% gross margins on all product lines. Aka it costs on average about half to produce their products as they sell them for. This is very good and indicates Apple's exceptional brand power. I think you all are confusing profit margin with return on invested capital.
          • riffdex

            Edit: Just to clarify. I said the high profit margins are "very good". I did not mean to pass judgement on Apple's high margins. I simply meant 50% is very high compared to most companies. I'm not trying to claim high profit margins are good or bad, but it certainly is encouraged in a free market economy.
          • Thank you for the clarification

            Yes, I should have used the term "markup". Thank you.
        • Profit cost seems off on your comment

          @Qmaverick, I think it's more like a 200% profit.

          $200 to build, 650 retail with no contract, for a 450 markup?

          Actually, it's closer to 225%.

          I still want one...
      • wtf are you saying?

        Apple is not an ARM architecture licencee..... their chips always contain cortex cores.... Apple doesnt invent or develop anything guy, please do your research and get that out of your head...
    • These are the additional costs you're ignoring...

      - Assembly
      - R&D costs (you know, that thing that Samsung gets for free from Apple ;-)
      - Licensing costs
      - Packaging
      - Advertising & PR
      - Transportation & delivery
      - Etc., etc. etc.
      Harvey Lubin
      • Assembly?

        That's covered in the chart. Or do you think that "Manufacturing Cost" does not include assembly? At our company, Manufacturing Cost covers assembly and packaging.