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$649 iPhone 5s Costs Apple $199
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Michael Endler
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Michael Endler,
User Rank: Author
9/25/2013 | 1:38:47 PM
re: $649 iPhone 5s Costs Apple $199
"Sadly, Apple does not spend that much for R&D anymore."

There were actually a bunch of articles last month that said Apple was modestly increasing R&D spending. They're supposed to have a ton of people working on a smartwatch, which could explain some of the upsurge.

Anyway, looking at Apple's R&D spending as a percentage of their profits doesn't tell the whole story.

Apple's profits have exploded over the last decade. Insane, insane growth. This is naturally going to drive down the percent of R&D:profit ratio.

Suppose, for example, that one year, Apple made $5 and spent $1 on R&D. The next year, suppose that Apple made $50 but spent $2 on R&D. In this scenario, R&D actually increased by 100%, year over year, but as a share of profit, it dropped from 20% to 4%.

This is an exaggerated example, of course. And I also have been a little disappointed when I see that Apple's marketing budget has increased so much faster than its R&D budget. But the ratio of R&D to profits can drop even if R&D and profits are both increasing; it just means that R&D isn't growing as fast as profit.

In other words, I don't see anything that implies "Apple does not spend that much for R&D." In real dollars, Apple seems to spend more on R&D than ever. It's only the percentage that has dropped, and though it would reassure some Apple fans to see them invest more in research, this sort of drop isn't the same thing as actually spending less.
Eric Zeman
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Eric Zeman,
User Rank: Strategist
9/25/2013 | 12:48:38 PM
re: $649 iPhone 5s Costs Apple $199
All - The original article contained two sentences regarding the difference between manufacturing cost and the final sale price. The comments were meant to be flippant and outlandish on purpose. I thought it was clear I was being snarky. Turns out some readers thought they were being misled on the facts. This article is about the cost to manufacture the devices only, which include the raw component cost when the parts are purchased at volume and the cost of piecing those components together. That's where IHS got its $199/$173 figures.

I did not intend to imply that the $199 price estimated by IHS represented the entire cost of developing, engineering, manufacturing, shipping, or transporting the iPhone. Obviously those factors are significant and boost the final cost to Apple by a wide margin.

With respect to the headline, the one I submitted with the article included the words "To Make" at the end. The headline was shortened for the sake of brevity and not to mislead readers or bait them into clicking on the article.
iamhungry
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iamhungry,
User Rank: Apprentice
9/25/2013 | 4:37:15 AM
re: $649 iPhone 5s Costs Apple $199
>what makes Apple so special that they have an outsized margin

You've got it the wrong way round. That they can charge an outsize margin is proof that Apple, as a company, are special.
iamhungry
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iamhungry,
User Rank: Apprentice
9/25/2013 | 4:34:39 AM
re: $649 iPhone 5s Costs Apple $199
Exactly. The correct title should be "The raw materials in a $598 iPhone cost $199."

I think Apple spend a bit on sales and marketing too.
ggiese87101
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ggiese87101,
User Rank: Apprentice
9/25/2013 | 4:28:57 AM
re: $649 iPhone 5s Costs Apple $199
The same people willing to pay the "Apple premium" are the ones falling for the "iOS 7 waterproofs your phone" hoax. Unbelievable how many lemmings are out there. If people realized they shouldn't line up on day one to get a new model and waited Apple out for a couple weeks or months, or even try a different brand for a change, Apple would start charging them a lot less for the product and the "Apple premium" would evaporate, making smart phones a lot cheaper for everybody. Apple is turning into the Microsoft of 5-10 years ago - fat and happy and clueless about how to compete. Blackberry should be a lesson to them, and they should go read "The Innovator's Dilemma". If the lemmings ever figure things out, they're in trouble.
ggiese87101
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ggiese87101,
User Rank: Apprentice
9/25/2013 | 4:19:18 AM
re: $649 iPhone 5s Costs Apple $199
Most of that R&D was for their fancy new offices...
ggiese87101
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ggiese87101,
User Rank: Apprentice
9/25/2013 | 4:18:18 AM
re: $649 iPhone 5s Costs Apple $199
I'm sure they spent millions coming up with just the right shade of gold...
Becca L
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Becca L,
User Rank: Apprentice
9/24/2013 | 10:49:44 PM
re: $649 iPhone 5s Costs Apple $199
I do agree about the bubblegum design, it is something many people have commented on and I'm surprised Apple is catering to this market. Maybe that opens them up to new (paid) features that makes it more masculine, just like your suggestion of different phone sizes. At this point they can't lose money if they try.
Frank_Truth
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Frank_Truth,
User Rank: Apprentice
9/24/2013 | 8:11:05 PM
re: $649 iPhone 5s Costs Apple $199
Thank you for agreeing with me.
Frank_Truth
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Frank_Truth,
User Rank: Apprentice
9/24/2013 | 8:10:13 PM
re: $649 iPhone 5s Costs Apple $199
As a percent of profit and earnings, Apple spent less than 3% for R&D, while Google and Microsoft both spent over 10%.
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