Lumia 900 materials cost $209, point to low-cost approach by Nokia, Microsoft

Single-core processor and limited DRAM are part of the savings

The materials used to build the Nokia Lumia 900 smartphone cost $209 -- well above AT&T's price for the phone of $100 with a two-year contract, but just 46% of Lumia's $450 retail price with no contract.

That's the finding of IHS iSuppli, which did a physical teardown of one of the new Lumia smartphones. The $209 cost for materials does not include an additional $8 for manufacturing.

Nokia, Microsoft and Qualcomm mimicked Apple and its iPhone by closely tying together hardware and software in the new phone to produce greater efficiencies in production, IHS said.

"For the Lumia 900, Nokia and Microsoft worked in close partnership with Qualcomm to develop and optimize the software stack in order to take full advantage of the hardware," Andrew Rassweiler, an IHS analyst, said in a statement.

With the iPhone, Apple uses low hardware costs and a relatively high retail price to win industry-leading margins; Nokia is using a similar production approach to offer an inexpensive phone that competes on price, he added.

Both Nokia and Microsoft are willing to lower their profit margins to gain a foothold in the smartphone market, IHS concluded. Currently, Windows Phone represents less than 3% of the smartphone market.

Wayne Lam, another IHS analyst, said IHS believes that Microsoft substantially discounted its software licensing fees on the Lumia 900 to match the overall lower manufacturing costs. Previous Windows Phone smartphones from HTC, Samsung and LG met with limited commercial success, and Microsoft has been willing to "double-down with Nokia to promote Windows Phone 7," Lam added.

IHS compared the Lumia 900's costs for components and hardware with the Samsung S II Skyrocket, an Android phone with a similar set of features. The Skyrocket's costs were $236, or 43% of its $550 retail price.

IHS said that Nokia kept the Lumia 900 hardware costs down primarily with the use of a single-core processor and limited DRAM, while still achieving competitive performance with the Skyrocket. The Lumia 900 uses the single-core APQ8055 processor from Qualcomm that costs $17; the Skyrocket uses the dual-core APQ8060 from Qualcomm that costs $5 more at $22, IHS said.

IHS Suppli chart
IHS compared the Lumia 900 with an Android phone, the Samsung S II Skyrocket. (Source: iHS Suppli)
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