The new iPhone is expected to carry an initial hardware Bill Of Materials (BOM) and manufacturing cost of US$ 173, according to a preliminary “virtual teardown” analysis conducted by iSuppli Corp.
If correct, the second-generation iPhone could be even more profitable for Apple than either the original iPone or the iPod.
Dr Jagdish Rebello, director and principal analyst for iSuppli, said that at a hardware BOM and manufacturing cost of US$ 173, the new iPhone is significantly less expensive to produce than the first-generation product.
He said this was despite major improvements in the product’s functionality and unique usability, due to the addition of 3G communications.
“The original 8Gbyte iPhone carried a cost of US $226 after component price reductions, giving the new product a 23 per cent hardware cost reduction due to component price declines,” he said.
Last week, a survey revealed that nearly a quarter of US consumers questioned in a survey highlighted price as the main reason why they were not considering buying an Apple iPhone 3G.
Dr Rebello said Apple was making a significant departure in its pricing strategy from the original 2G phone, which was sold at an unsubsidised price of US$ 499.
Unlike the first version of the iPhone, Apple will not receive a portion of the wireless carriers’ revenue from service subscriptions – making it more imperative that the company makes a profit on the actual hardware through the carrier subsidies.
He said the estimated subsidy to be paid by the wireless carriers to Apple would be about US$ 300 per iPhone.
“This means that with subsidies from carriers, Apple will be selling the 8Mbyte version of the second-generation iPhone to carriers at an effective price of about US$ 499 per unit, the same as the original product,” he said.
This represents a higher BOM/manufacturing margin than that on Apple’s iPod and original iPhone, which typically are priced about 50 per cent more than their BOM and manufacturing costs.
The analysts project that with BOM costs likely to decrease over time as component prices decline, the BOM/manufacturing cost of the second-generation iPhone will decrease to US$ 148 in 2009, down 37 per cent from US$ 173 in 2008.
If the design remains unchanged, this cost will decline to $126 in 2012.
iSuppli’s preliminary virtual teardown estimate of the 8Gbyte 3G iPhone’s costs doesn’t include other costs, including software development, shipping and distribution, packaging, and miscellaneous accessories included with each phone.
Once the 3G iPhone becomes available, iSuppli will perform an actual, detailed teardown of the new iPhone’s components and cost structure.

Subscribe to our Newsletter