Don't Buy In To Those iPhone Per-Unit Profits Just Yet

from the premature-accounting dept

Thu, Jul 5th 2007 2:31pm — Carlo Longino

Soon after the release of every new Apple product (and other companies' new gadgets as well), some analysts tear one open and try to figure out how much its components cost to get an idea of the margins on each unit that's sold. A recent teardown of the iPhone suggested a per-unit cost of $200 for the 4 GB version, and $220 for the 8 GB one, suggesting that Apple's making a huge profit on each iPhone it sells. But, as Stephen Wildstrom at BusinessWeek points out, taking these teardown estimates too seriously can be foolish. As he notes, the cost of many of the components -- including the device's centerpiece, that huge, glorious touchscreen -- is little more than a guess at this point. But perhaps more importantly, focusing on the components' cost ignores the not inconsiderable costs Apple sunk into developing and marketing the iPhone. Certainly the iPhone has the potential to reap huge profits for Apple, but it's a little premature to be tallying up the figures just yet. Furthermore, as the initial supply looks to be drying up, it's worth wondering just how long Apple can keep the sales momentum going.

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36 Comments

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Sohrab, 5 Jul 2007 @ 2:50pm

yea, like many things, people forget the Research and Development costs of things. Its not like they just found the blueprints of the unit.

If im not mistaken, this phone has been into production for over 2 years and even resources were taken away from OSX development to finish the iPhone.

Having said that, i love my iPhone so that 2 years was spent damn well.
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Anonymous Coward, 5 Jul 2007 @ 2:56pm

If looking at the teardowns done on video game consoles has taught anything its that component costs truly mean little. Look at the current Xbox 360, PS3, Wii market. Sony is taking a big loss in component costs to build each PS3 unit. Superior hardware doesn't automatically equal the lead since the PS3 is is third...for right now. Nintendo is coming out the gate with very little loss on each Wii (I think they projected to start making profit on each Wii by the end of this year I think). Even though it's the least powerful of the three is it in a strong second right now and may even take the lead this year. Microsoft seems to have a good idea with its not quite cutting edge technology in the Xbox 360. And because of this their losses per unit is not as bad as PS3 or as good as Wii. For now it has the lead in the current gen war but with Nintendo nipping at its heels and Sony appearing to be planning for the long term all that could change.

So back on topic. There are some cold hard facts that a teardown can provide. And that would be the actual component costs of an iPhone. Yes it is premeture to claim the manufacturing cost - retail price = $$$ profit! $$ but trick is to not get caught up in the conclusions draw by the analysts writing these articles. Just take the facts and run.

Besides we all know that a possible interpretation of the word analyst is rumor mill.
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splicezone, 5 Jul 2007 @ 3:01pm

touch pannel
wow big deal = "including the device's centerpiece, that huge, glorious touchscreen -- is little more than a guess at this point"

Not a guess ....glorious touchscreen should be around $9 to $14 max the main cheese in the softwear people.

It only has 8 GB big deal.

Had enough of this IPHONE if they had it for all the carries it would of made history I est 1.3 million min on the first 2 days.

Steve enjoy it while it last buddy.
all good things gome to an end soonner or later.
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Sohrab, 5 Jul 2007 @ 3:07pm

Re: touch pannel
hahaha. wow. people are so pissed off in this world and such a fanboy of one thing or hate something else that its amazing.
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Ted Wood, 5 Jul 2007 @ 3:25pm

Re: touch pannel
Definitely envious, aren't ya?
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Steve Jones, 5 Jul 2007 @ 3:31pm

What R&D costs?
Seems everything the iphone has is rehashes of others stuff, nothing at all new or innovative. Any of the big cell phone makers, could take a month and a team of 2 or 3 graphic artists and you could have you could reproduce a phone better than an iphone. If not for hype and Apple fan boys nobody would buy an iphone.
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dorpus, 5 Jul 2007 @ 3:36pm

per unit deaths?
Given that the i-phone glows red-hot just like other portable computing devices, how many people will have their heads explode per unit?

http://www.msnbc.msn.com/id/19614050
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Zardos, 5 Jul 2007 @ 3:42pm

@ Steve Jones.

Yeah but none of them did, did they genius?

You could say exactly the same thing about ANY item ever, including the wheel and the light bulb.

BTW, bringing the first widely available multi-touch product to market has tremendous R&D costes behind it. And anyone with a brain probably wouldn't classify CNN, Time magazine, and the Wall Street Journal as "hype from Apple fan boys".
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someguy, 5 Jul 2007 @ 3:48pm

Wow an MSNDC article on problems with the iphone. No one saw that one comming.

http://www.msnbc.msn.com/id/19614050
There you have it folks, straight from the bull's arse!

I wonder why there was no coverage of a real tech story like:

http://news.bbc.co.uk/2/hi/business/6275728.stm
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happymellon, 5 Jul 2007 @ 3:50pm

Re: What R&D costs?
I think the point is valid. Nothing here is particularly new. You could knock something like this, and in the case of the Open Moko project others are. But that's where it all falls down. They could have done this, or they could have done that. They didn't, and Apple is sucking up a market full of people that want a useful handheld phone/device, and all they could find were Pocket PC rehashes, which I personally find the interface horrible.
Since the other companies should be looking at this and seeing where they went wrong things should improve, but that is all speculation.
As it stands Apple has a device that bests the rest and I haven't heard of any anything, except the Open Moko, that is even attempting to fix this problem.
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Von Crutch, 5 Jul 2007 @ 3:57pm

Saving R & D, Balmer style
I guess M$ will be the company really saving R&D dollars when a crappy copy of iphone 1.0 comes out in 2011(best trend fit). I can't wait to get my brown zunephone so I can "squirt" my music back onto it every 3 days! Maybe they'll pay business men to show them off like they did the truly pathetic and sad "Zune Ambassadors".
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Victor F. Stein, 5 Jul 2007 @ 4:06pm

I think most people don't understand Apple.

-The mac wasn't the first personal GUI computer geared towards non-techeads, it was the best one.
-OS X wasn't the first PMTS operating system, it was the best one.
-The ipod wasn't the first mp3 player, it was the best one.
-The iphone wasn't the first ....

I think you get the picture.

By the way #11 is right, the Microsoft rip-off should ship by 2011 (see list above)
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Steve austin, Asrto-not, 5 Jul 2007 @ 4:18pm

Shut up stupid. - Collin Quinn
I can't believe you idiots actually complaining that there is a new product out that you can either buy or not buy!! The fact that apple took the time to build and release this product can only make future products better, why bitch about that? If your answer is "the hype" then I guess you have been living under a rock for the last 10 years or really aren't aware of the state of journalism in American.

PS. Man, I can't believe that Paris Hilton, she gets me so steamed I have to complain about it every chance I get.
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Ratzo'sCousin, 5 Jul 2007 @ 5:10pm

Re: Sohrab's love of iPhone
Let's be honest here, you'd have loved a stinky turd as long as it came from Apple and it was shiny.
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Damian, 5 Jul 2007 @ 5:26pm

Why AT&T???
I just got done playing with one of them and as usual the internet speed on the phone SUCKS!!!

I hardly leave the country and when I do I sure as hell do not plan to be working!!! Where is the love for CDMA!!! I wonder if AT&T will ever be close to Sprint and Verizon on wireless speed!
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chuck norris, 5 Jul 2007 @ 5:35pm

Re: Ratzo's hate
Let's be honest here, you'd have loved a stinky turd as long as it came from Apple and it was shiny. but it wasn't. and you would have obviously dumped on it even if it was a great product. and it was. Your hypocrisy is simply stupefying.
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SimonTek, 5 Jul 2007 @ 6:26pm

They are all going to ebay and craigslist. I feel like waiting till theres a steady supply of them.

Also GSM is supported around the world CDMA isn't. I think they were thinking on a global scale when they designed the phone.
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pwb, 5 Jul 2007 @ 11:48pm

I think where their off is in the revenue number. None are taking into consideration the $100-400 Apple is getting from AT&T.
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Anonymous Coward, 6 Jul 2007 @ 5:16am

Re:
Ok, off topic, but I had to correct this.

Wii is outselling the X-Box 360, so the Wii is in first right now.

The Wii also makes a profit (aside from R&D) off of each unit since the first sale.

With the amount of units sold, they've probably paid off the R&D costs by now =P

Btw, I want the PS3 to come out on top. I'm not a Wii fan.
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Anonymous Coward, 6 Jul 2007 @ 5:20am

Re: What R&D costs?
Ok, while there's a lack of a LOT. The touch screen and interface are innovative. The multi-touchscreen is actually relatively new to the consumer market (first mainstream multi-touch at least). And while it lacks a lot of features, its interface is unique, ie innovative.

But honestly, it lacks too much. the interface does NOT make up for it. if the rumors are true that there'll be an iphone-ish ipod, that'll be somewhat neat.

What they need is the ability to make real playlists on the ipod itself. Like a full version of iTunes ON the ipod plus that neat touchscreen interface. That'd make a great music player.
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Anonymous Coward, 6 Jul 2007 @ 5:22am

Re:
To be honest, CNN, Time, and the WSJ would report on anything that has a large enough audience. So while they aren't fanboys, they only gave it so much coverage BECAUSE of fan boys.

Without such fervent loyalty, the iphone wouldn't have made such a huge splash. if some other company made it, even if it was *exactly* the same, it wouldn't have gotten that noticed.
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Anonymous Coward, 6 Jul 2007 @ 5:25am

Re:
no, the ipod wasn't first mp3 player, but it wasn't the best one either. but it WAS the first one to use a hard drive... and iTunes was the first store of its kind.

The iPod is big cause it started early. The iPod had a lot of sales in the beginning and due to iTunes, people wouldn't switch to another player, even if it was better. thats one *amazing* business strategy on their part.

the iPhone is *not* the best. it has a nice interface. thats it. it lacks a LOT of features that a LOT of people want. the only reason its selling a lot is due to people thinking apple is like some way of life and completely over-hyping it.

Yea, it *is* awesome. i don't deny it. it has some unique features. but its *not* the best. its just the only one with the multi-touch screen right now.
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Anonymous Coward, 6 Jul 2007 @ 5:28am

Re: Saving R & D, Balmer style
by the way, HTC the Touch is supposed to be MS's response (which is supposedly out already in some countries I think). However, they're response was to put that nifty touch screen interface OVER windows mobile. so you use your fingers for a couple things, but once you get into windows mobile, you need the stylus again.

so, yea, it does suck, but its not 2011.

Other companies will release iPhone knockoffs and a few of them will probably be better, but none of them have the fan-base that Apple does. The iPod is not the best, but thats not the reason it's in first either. It's cause of customer loyalty and great, AMAZING business strategy with iTunes.
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Anonymous Coward, 6 Jul 2007 @ 5:30am

Re: Re: Ratzo's hate
there was no hypocrisy on his part... i think you need to look up what it actually means.

was he stereotyping? maybe. was he over-exaggerating? quite possibly. was he hypocritical? absolutely not.
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Anonymous Coward, 6 Jul 2007 @ 5:32am

Re:
well, certain bands of GSM are all over, but no band is global. I'm not sure if the iPhone is quad or even tri-band. Maybe it is.

The reason the wireless is slow isn't due to its lack of using CDMA though. It's because it didn't use 3G and their response was due to it not being energy efficient. Which could very well be the case and they did say that they will include it in a newer version iphone when they see fit.
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Anonymous Coward, 6 Jul 2007 @ 5:34am

Re:
which, btw, is a low blow. to demand money from the service that they have no right to is ridiculous. i'm glad verizon turned them down for that.

Apple is just as evil as Microsoft. They just cover it up a LOT better. And they look a lot prettier too.

Microsoft is like the ugly version of the devil. Apple is like the hot, sexy female version of the devil. Both will screw you, but part of you don't mind so much with the latter.
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SailorRipley, 6 Jul 2007 @ 6:23am

Re: touch pannel
all good things gome to an end soonner or later.

and looking at your post, linguistic skills fall in the "(very) soon" category
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Mr. Vage, 6 Jul 2007 @ 7:07am

Re:
Where did you get this information? I'm not saying it's wrong, I've just never heard this before and I would like to see a source for this information.
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Anonymous Coward, 6 Jul 2007 @ 7:32am

Re: Re:
I agree. The iPod is not the best mp3 player its the most popular. Yes there is a difference.

Figuring out what the "best" anything be it video game, cell phone, movie or whatever is a matter of personal taste. This is why any "What is the best _____?" thread of any forum on the internet runs the risk of decending into the firey depths a flamewar.

While popular on the other hand is a factual statistic of how many people think something is the best of its category. The iPod may not be the best mp3 player but there is no question that it is the most popular given how much of the mp3 player market it commands. And it is only popluar because most people believe it is the best. If the tide turned and all of a sudden the Zune became the most popular then it would be because more people would believe that the Zune was the best mp3 player.

And if that doesn't clear it up just remember that right now Paris Hilton is one of the most popular "celebrities" (and I use that term very loosely) right now.
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SailorRipley, 6 Jul 2007 @ 7:51am

Re: Re: Saving R & D, Balmer style
I'm no Apple fan boy by any standard, but it would be nice to finally see someone actually back up the claim "the iPod is not the best" with some facts for a change
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SailorRipley, 6 Jul 2007 @ 8:02am

Re: Re: Re:
One could however make a list of features/categories and list all mp3 players (or a subset) for each of those features/categories in order of excellence...those would or could be factual statistics as well.

I don't agree that what the best player is is a matter of personal taste...what player you like best is, but I do think it would be possible to come up with a set of objective criteria, as well as objective scoring for those criteria...

examples of said criteria could be: storage size, battery life, sound quality,...
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SailorRipley, 6 Jul 2007 @ 8:10am

Re: Re:
Again, I'm not an Apple fan boy...

hmmm, let's see:

scenario 1: Apple releases the iPhone and you can use it with any of the providers

scenario 2: Apple releases it exclusively for AT&T

yeah, you're right, it's so low of Apple to expect AT&T to pay for that exclusivity and hence compensate for the missed sales Apple would have without the exclusivity agreement
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Nasty Old Geezer, 6 Jul 2007 @ 10:43am

Re: Re: Re: Re:
Any statement that something is "the best" must be followed with "for these purposes....." or it is completely menaingless.

Which is "the best" vehicle? A Rolls Royce? Well, maybe, unless you are talking about "the best for taking 7 people and my boat to the lake". Fitness of purpose is what defines "best".

The best MP3 player may be the one that costs the least, is most durable, and compatible with Linux -- for one person. The best phone may be the one that creates the most envy in your acquaintances, regardless of voice quality or range.

What's "best" for you may be useless for me, because I have different needs and/or budget.

Nothing made by man is ever "the best" for everyone, not even Oreo cookies.
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jackie113, 8 Jul 2007 @ 8:26pm

60606
The iPhone, as Jobs proudly dubbed the device to thunderous applause, will be three devices in one: a cell phone, a wide-screen iPod with touch controls, and an Internet communications device

www.mp4-converter.net/iphone-converter/iphone-video-converter/
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Lost American, 11 Jul 2007 @ 12:20am

Re: Re:
Btw, I want the PS3 to come out on top. I'm not a Wii fan.
Why in gods name would you want that huge piece of shit to be in first? All $ony did was take everything they could from M$, and try to surpass M$ in the hardware.

At least Nintendo was intelligent and made the Wii a SELLER from the start. Even you said The Wii also makes a profit (aside from R&D) of each unit since the first sale. Now, that says something. Because the PS3 is a LOSS LEADER for $ony right now. That means they are actually DUMPING hundreds of $$ IMHO
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Justin, 15 Aug 2007 @ 12:19am

iPhone
I found a site recently.... Buy iPhone .. bought my iPhone through them and love it!
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