iPhone Margins Smaller Than Reported, Claims Analyst - InformationWeek

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1/29/2007
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iPhone Margins Smaller Than Reported, Claims Analyst

Apple's gross margins may be closer to the 20 percent range than the originally estimated 50 percent; costs of the touch screen are a focus.

LONDON — Analysts are beginning to question earlier reported Bill of Materials costs on Apple's iPhone and are suggesting that the gross margins Apple will achieve may be much lower than predicted, and nearer the mid to high 20 percent range than the estimated 50 percent. In particular, there are debates about the cost of the display and related touch screen technology.

For instance , DisplaySearch (Austin, TX.) suggests the cost to Apple of the display approaches $60, almost twice that of other estimates due to the 3.5-in 320 - 480 display and the nature of the touch screen technology.

According to DisplaySearch Apple has followed its normal trend of eschewing the use of off-the-shelf displays for its innovative designs. The market research group stresses the narrow bezel around the display, as well as the thinness of the device, indicate that a standard display product would not meet Apple's aggressive design requirements.

It believes the underlying technology of the display is LTPS, or a derivative thereof, and that the glass is thinner than the typical mobile phone display, perhaps as thin as 0.25 mm. The silicon technology underlying the display and thinness of the display glass combine to increase the manufacturing cost to the panel maker, and by extension, the price that Apple pays for the display. "DisplaySearch analysis indicates that the price of the display is $30, and that this may be doubled because of the multi-touch panel and its integration on to the display," the company said in a statement.

DisplaySearch adds that as well as the display cost, the "Multi-touch" technology that is used in the phone is proprietary. Apple says the technology used allows the user to touch the display in two places simultaneously, compared to other touch screen technology that accepts only one user input.

This will add significant cost over standard touch screen technology. "We estimate that adhering the Multi-touch panel to the liquid crystal display adds cost as well. Our estimate for the cost of the Multi-touch panel and the integration of the panel on to the display adds at least $30 to the cost of the display," says DisplaySearch.

John Jacobs, Director of Notebook Market Research at the company, notes that Steve Jobs, in his keynote address at MacWorld, said Apple has filed for more than 200 patents for technologies in the iPhone.

"Such innovation does not occur without cost. Although Apple and its key component suppliers may choose to amortize the cost of these advanced technologies over a large number of units, our analysis indicates that Apple's BOM (bill of materials) cost, including integration, is well above $300 for the 4 GB model. After the costs associated with building, shipping, marketing and selling the iPhone are included, we expect that margins will be closer to Apple's typical mid to high 20 percent range."

Meanwhile Geoff Walker, a consultant on displays, touch and mobile computers, has e-mailed EE Times Europe suggesting the cost of the LCD itself is between $30 and $31 and the touchscreen sensor another $3.

"Basically it's a projected capacitance touchscreen with clever signal processing (DSP) algorithms to support multi-touch. What's unknown is whether Apple is using the 'self capacitance' or the 'mutual capacitance' version of the sensor that is described in the patent; personally I think it's the latter. This is also the more common structure for existing projected capacitance sensors (for example, from Touch International)", writes Walker. He adds that: "Apple has invented anything really new here. Multi-touch already existed; Apple did not invent it. What they have done is what they are famous for -- they have improved something. The touch-gesture vocabulary, the excellent integration of touch into every aspect of the iPhone's operation, and the overall simplicity of operation is what is really new. And it is very, very good!"

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