Apple cuts its iPhone costs by $5 for Verizon version

May have trouble squeezing all the parts for an AT&T iPhone 5 into the same design, says iSuppli

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Apple cut component costs of the Verizon iPhone by about $5, a decrease of about 3% compared to what Apple pays now for the parts in the iPhone 4 that runs on AT&T's network, an analyst at electronics research firm IHS iSuppli said today.

The drop was smaller than what iSuppli had expected going into its analysis of the Verizon iPhone, said Andrew Rassweiler, the senior director of the El Segundo, Calif. company and the manager of its teardown group.

"If you were to do an apples to apples comparison, no pun intended, [the Verizon iPhone 4] is not that different in cost than the AT&T iPhone is now. It's only a few dollars lower, somewhere around $5 lower."

Rassweiler's estimate differed from one cited in earlier reports about the cost difference between the two phone models. In a Thursday press release, iSuppli compared the Verizon iPhone's "bill of materials," or BOM -- a list of component cost estimates -- with the BOM it assembled last June after the iPhone 4 debuted on AT&T.

According to that press release, materials and parts for the new CDMA 16GB iPhone 4 run Apple $171.35, 8.7% less than the $187.71 estimate the company put on last summer's model. Most news outlets seized on the press release's figures, and calculated that the Verizon iPhone was almost 9% cheaper for Apple.

But last year's number for the AT&T iPhone is outdated, Rassweiler acknowledged, which is why a more accurate comparison is to a new estimate for the AT&T iPhone 4 that iSuppli completed just last month for a client who wanted to know Apple's then-current costs.

"Instinctively, we knew that the CDMA iPhone [for Verizon] would be cheaper to make, but that's really not borne out by the numbers," said Rassweiler.

The lower costs in the AT&T iPhone between June 2010 and January 2011 are due, said Rassweiler, to Apple's appetite for components -- it sold 30 million iPhones in the last six months of 2010 -- and thus its ability to drive down costs with ever larger orders from suppliers.

The BOM of the Verizon iPhone and iSuppli's accompanying teardown of the device illustrates Apple's aggressiveness in producing leading edge designs and optimization of the smartphone, continued Rassweiler. "Apple is trying to optimize and keep the costs down, which makes total sense," said Rassweiler.

He cited a number of changes to the Verizon iPhone to prove his point, ranging from the GPS functionality integrated with the Qualcomm baseband processor to the shrinking of the Wi-Fi and Bluetooth module.

The latter got special credit from Rassweiler, who said Murata, the maker of the Wi-Fi and Bluetooth component, has a stellar history of embedding components such as resistors, freeing up more logic board space for other parts.

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