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You are here: MacNN Forums > News > Mac News > Research firm estimates iPhone 6s Plus costs $236 to manufacture

Research firm estimates iPhone 6s Plus costs $236 to manufacture
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Sep 30, 2015, 09:43 AM
 
The materials used to manufacture the iPhone 6s Plus is said to cost less than a third of its retail price, according to an estimate by a research firm. It is believed by IHS Technology that the components and materials used in the larger of the two Apple smartphones cost $231.50, which when combined with the estimated production cost of $4.50 per device, brings the overall, manufacturing cost per smartphone to just $236.

While IHS has yet to tear down the iPhone 6s, Recode reports the research firm as estimating the smaller smartphone's material cost at $211.50, or $20 cheaper than its larger stablemate. Senior research director Andrew Rassweiler also notes the teardown analysis is limited, since it does not take into account other indirect costs associated with production, including research and development, marketing, and the shipping and warehousing of finished devices.

Image from an earlier teardown by iFixit
Image from an earlier teardown by iFixit


According to the figures provided by the firm, Apple spends approximately $52.50 on each iPhone 6s Plus display, with the suggestion the extra electronics required to read pressure for 3D Touch adds about $10 to the cost of the component. The A9 processor is said to cost $22 alone, with the front and rear cameras priced at $22.50, and the 2GB DRAM module at $17.

The report also highlights an apparent disparity in terms of the raise in price of storage-related components and the eventual retail price of the device. The 16GB NAND module included in the model taken apart by IHS is believed to cost $5.50, and at a cost of around $0.35 per gigabyte, this would mean using 64GB of NAND storage would increase the manufacturing cost by around $17. Upgrading from the 16GB to 64GB model sold in stores usually costs consumers an extra $100.

While it is unknown how accurate the report is compared to what Apple actually pays per device, it does suggest that Apple may be making a healthy profit per iPhone sold. Even so, it is probably safe to assume Apple CEO Tim Cook to frown upon the report. In an earnings call in April, AppleInsider reported Cook as claiming never to have seen a materials cost estimate "that's even close to accurate."

Estimates for the production of the iPhone 6 suggested it to have cost Apple around $216 to manufacture.
     
prl99
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Sep 30, 2015, 11:30 AM
 
"While IHS has yet to tear down the iPhone 6s" so they don't have any real idea what's in there other than from reading other websites. Of course, all they do is try and guess what each component costs without taking into account retooling of the manufacturing process just to make the non-bendable case. I'm getting tired of these attempts to show Apple is making a huge profit when only half the costs are even included. If someone calculated the component cost of a loaf of bread, they'd really be upset when they discovered it only cost 10-cents (or less) in raw materials. I also wish websites would quit posting garbage from IHS exactly for this reason.
     
Jeronimo2000
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Sep 30, 2015, 11:33 AM
 
There's only one thing that's worse than those idiotic material cost estimates – it's the media outlets reporting about it. Why do we give those morons who yell "iPhones are overpriced crap!" even more ammo? All that sticks in their head is "An iPhone costs 200 bucks to make, yet Apple charges three times that and more. Ripoff!".

I mean, they even admit themselves that "... the teardown analysis is limited, since it does not take into account other indirect costs associated with production, including research and development, marketing, and the shipping and warehousing of finished devices." – so why even talk about it? Especially since it is already agreed that what Apple actually pays for those components is most certainly a completely different story than the numbers those clowns came up with?
     
Grendelmon
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Sep 30, 2015, 12:15 PM
 
"Idiotic, morons," blah blah.

Give me a break. Apple controls the supply chain. Period. And recouping cost for R&D for minimal hardware upgrades per product cycle? LOL...
     
Jeronimo2000
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Sep 30, 2015, 01:21 PM
 
Exactly. Apple controls the supply chain. That is precisely the reason why those estimates are both idiotic and moronic. Nicely summed up, Grendelmon.

And while R&D is only a part of the equation (for example, those fancy boxes the iPhones come in don't ship themselves around the world, do they), you don't honestly assume that stuff like 3D Touch gets developed during the course of an afternoon by two interns, do you?
     
Makosuke
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Sep 30, 2015, 04:31 PM
 
Even if this parts cost estimate is accurate--which is pretty hard when you're dealing not with a phone built from off-the-shelf generic components but a bunch of 1st generation custom things like a completely custom screen/touch/force touch system, a touch sensor only used by Apple since they designed it, and so on--then it of course omits design costs, administrative overhead, marketing, packaging, destination costs, developing an entire OS, developing free apps included with the OS, support for the OS and hardware, warranty, etc. There's also carriers, but I don't know actually know whether on average they pay Apple or they make a slice of the cost of the phone.

Those software costs, in particular, are probably pretty high. As with most businesses, if the item doesn't cost a lot more than the sum of the parts, you're not going to stay in business long.

But forget all that; we already know more or less what Apple's profit margin is on the devices, because we know what their gross margin is. The iPhone is not going to match that precisely, but since it makes up the bulk of Apple's gross income, and they're not likely to get into markets where they can't maintain roughly that profit margin, one can guess that the iPhone is somewhere in the same range.

So, looking at the last couple of years with a consistent profit margin in the ~36-40% range, there you go. Whatever it actually costs to manufacture an iPhone 6s, over the life of the product it's going to cost Apple about $400 to actually make, overhead included, a $650 phone.

Whether ~38% is an acceptable profit margin or not for a large company is up to the individual to determine, unless the government sets a cap on corporate profit margins.
     
   
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