3G iPhone Parts Cost Apple $173, $53 Less Than The Original

According to Silicon Valley research firm iSuppli, Apple was able to leverage its buying power to keep the hardware costs of the 3G iPhone to just $173 (for the 8-GB model). That's $53 less than it paid for the original iPhone's components. For the moment, analysts are suggesting that the unsubsidized cost of the device will be near $600. Pretty healthy margins, if you ask me.

Eric Ogren, Contributor

June 24, 2008

2 Min Read

According to Silicon Valley research firm iSuppli, Apple was able to leverage its buying power to keep the hardware costs of the 3G iPhone to just $173 (for the 8-GB model). That's $53 less than it paid for the original iPhone's components. For the moment, analysts are suggesting that the unsubsidized cost of the device will be near $600. Pretty healthy margins, if you ask me.How was Apple able to keep the hardware cost of the 3G iPhone so low? Well, most of the device is unchanged from the original, meaning Apple was able to use economies of scale in its favor and simply order more of the parts it was already using. As for the parts that differ, bringing in the 3G chipset didn't set Apple back too much. It turns out that German chipmaker Infineon did win Apple's business after all and is supplying the 3G radio. ISuppli was not able to determine the exact cost of the 3G radio chip, but it apparently isn't much more than the original's 2.5G chip.

Other parts, such as memory, are widely available, and Apple has major purchasing power here. It buys massive amounts of memory for the iPhone, as well as its lineup of iPods. Large volumes help to keep down costs, which are estimated to be $23 for the 8-GB memory chip and $46 for the 16-GB chip.

Based on the sales price of the 3G iPhone (estimated to be between $600 and $625), the cost of components and other royalties that Apple has to pay, it will still net about $281 for the 8-GB iPhone. Not bad profit at all.

According to BusinessWeek, iSuppli analyst Jagdish Rebello said, "[Apple has] done a good job in using what worked well with the first one and making improvements where it mattered."

I'd say so.

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