News Column

How Much Does It Cost to Build an iPhone?

Sept. 25, 2012

Leslie D'Monte, Mint, New Delhi

iPhone 5
iPhone 5

How much would Apple Inc. have spent to produce the base (16GB) version of the iPhone 5 that it sells at $649 (without the contract)?

Research firm IHS iSuppli, in a press release dated 18 September, said after its preliminary virtual teardown, it pegged the iPhone5's bill of materials (BOM) at $199 for the low-end model with 16GB of NAND flash memory. After adding $8 as manufacturing cost, the cost to produce the iPhone 5 rises to $207, according to IHS. For the 32GB version of the iPhone 5, the BOM cost increases to $209.00, while the 64GB version is estimated at $230.00.

Please note that these teardown assessments are preliminary in nature, account only for hardware and manufacturing costs and do not include other expenses such as software, licensing, royalties or other expenditures, IHS qualified in its press note.

The virtual teardown information is based on an analysis of the specifications announced by Apple, combined with information regarding known components and suppliers. IHS said it may revise the numbers after the "actual physical teardown of the device".

"With the base model carrying a $199 BOM, the iPhone 5's components are expected to be slightly more expensive compared to the iPhone 4S model," said Andrew Rassweiler, senior principal analyst, teardown services, for IHS. "The low-end iPhone 4S with the same memory density as the base-model iPhone 5 carried a BOM of $188, according to a preliminary estimate issued by IHS in October 2011. While the price of some components, such as NAND flash, has fallen during the past year, the iPhone 5's overall BOM has increased mainly because its display and wireless subsystems are more expensive compared to the iPhone 4S."

As in previous models, the costliest subsystem in the iPhone 5 is estimated to be the display with integrated, in-cell touch sensing. At $44, this subsystem is pricier than the combined total of $37.00 for the iPhone 4S display with separate touchscreen based on pricing from October 2011. This is due to the iPhone 5's larger display -- at 4.0 inches diagonally, compared to 3.5 inches for the iPhone 4S -- and the inclusion of the new in-cell touchscreen technology.

"The iPhone 5 makes a big evolutionary step in technology that we have not seen elsewhere with the use of in-cell touch sensing," Rassweiler said. "Most other smartphones LCDs (liquid crystal display) use a completely distinct capacitive touchscreen assembly that is physically separate and placed on top of the display. The iPhone 5 partially integrates the touch layers into the display glass, making the product thinner and reducing the number of parts required to build display that senses touch without the need for a separate capacitive touch layer."

In the past, smartphones with capacitive touch technology employed different suppliers for the display and touchscreen. However, Samsung made the first advance beyond conventional capacitive touch with what is known as on-cell touch. All of Samsung's Super AMOLED screens employed in smartphones use on-cell technology, which is sold as a single integrated display/touchscreen unit from Samsung. When smartphone makers buy Super AMOLED displays from Samsung, they come with touch capability integrated. This simplifies smartphone product designs and also makes them thinner, said IHS.

Apple's in-cell technology represents the next step beyond on-cell by integrating the touch sensing feature into the display. No separate touchscreen assembly is involved; instead, a single unit comes directly from the iPhone 5's three known display suppliers -- LG Display Co. Ltd, Japan Display Inc and Sharp Corp.

The addition of high-speed 4G LTE technology is estimated to have driven up the cost of the wireless section of the iPhone 5, at $34.00, compared to about $24.00 for the iPhone 4S.

"We believe that Apple is implementing LTE in a particularly novel way," Rassweiler said. "Apple ideally would like to sell one iPhone in all markets. However, there are so many different LTE frequencies that must be supported around the world that this has become a difficult thing to do. For most smartphone manufacturers, the solution is to build different variations of their smartphones for each carrier, so that they won't spend extra money on superfluous components. However, this is not the Apple way."

Another major upgrade of the iPhone 5 is the use of the A6 processor, compared to the A5 in the iPhone 4S. The A6 is estimated to be slightly more expensive, at $17.50, compared to $15.00 for the A5, based on pricing at the time of the iPhone 4S's introduction.

According to preliminary information, the A6 has a dual-core processor as well as several graphics-processing units to boost performance. Samsung is expected to be the manufacturer of the A6. However, since this is an Apple-designed chip, Samsung is expected to produce it on a foundry basis, rather than acting as a semiconductor supplier for Apple. IHS speculates the A6 is manufactured using at least 32nm process geometry, and perhaps even the more advanced 28nm technology. This will be determined during the IHS iSuppli physical hardware teardown.

The 16Gbytes of NAND flash in the iPhone 5 is estimated to cost $10.40, down dramatically from $19.20, based on pricing in October 2011.

"NAND flash continues to come down in price as manufacturing processes for these memory chips become more advanced," Rassweiler said. "And because it is the world's largest buyer of NAND flash, Apple gets preferential pricing. Apple's massive leverage in this market is reflected in our price estimate," said the IHS note.

In its earlier teardowns of other phones, IHS had pegged the building cost of Nokia's Lumia 900 at $209, and that of Google's Nexus 7 tablet cost at $152.


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Source: (c)2012 Mint (New Delhi) Distributed by MCT Information Services


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