iPhone manufacturing costs down from last year

The last five days have been all about breaking down the iPhone 3G--how the big release went, how many phones have sold, how the device lives up to its promise.

Now, some more numbers to toss in the mix: iSuppli has completed its iPhone 3G teardown analysis and estimated that Apple cut more than $50 from manufacturing costs per unit since the first-generation phone made its debut last year. Profit margins for the new gadget, according to the market research firm, are measuring in the range of 55 percent.

(Credit: James Martin/CNET News)

Apple spent $174.33 for initial production costs for the 8GB model, according to iSuppli. (This figure consists of the iPhone 3G's bill of materials (BOM) and manufacturing expenses combined. It does not include other costs, such as software development, shipping and distribution, packaging, and miscellaneous accessories included with each phone.) Beyond the $174.33 BOM/manufacturing costs, Apple is spending an estimated $50 on IP royalties per unit shipped.

At $174.33, the BOM and manufacturing cost of the new phone is markedly less than the $227 outlay iSuppli estimated for the first-gen 8GB iPhone last year.

iSuppli's cost estimate is just about on par with the $173 BOM predicted in its virtual teardown released in late June. While using a new design, the iPhone 3G represents a refinement of the original iPhone 2G, the firm says.

"The addition of 3G wireless capability represents an evolutionary design step for the iPhone, not a revolutionary one," said Andrew Rassweiler, teardown services manager and principal analyst at iSuppli. "iSuppli believes Apple aimed for a more cost-effective design for the 3G iPhone compared to the 2G, in order to lower the retail price--which will allow the company to seed adoption and to capture maximum market share now, while the company still has buzz and a perceived differentiation relative to its competitors."

iSuppli dissected the product to identify component suppliers, and determine preliminary part and system costs. Other conclusions:

• The redesigned phone internals include only one large printed circuit board, instead of the two nested PCBs found in the 2G version. The iPhone 3G uses a 10-layer board, compared with the less expensive 6-layer PCBs commonly employed in mobile handsets.
• The battery is not soldered into the iPhone 3G as it is in the 2G, making it more serviceable.
• Some chips have the Apple logo or are unmarked. Although iSuppli has been able to identify many of these parts and their true manufacturers by de-capping the chips and examining them, some devices currently remain unidentifiable.

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