iPhone 4 parts cost Apple just $171

16GB model boasts gross margin of 61%, says analyst

Apple Inc.'s iPhone 4 costs the company about $171 to build, a Wall Street analyst said today, giving the new device a profit margin of more than 61%.

Materials and parts for the 16GB iPhone 4 total $171, said Brian Marshall of BroadPoint AmTech, while non-hardware costs such as licensing fees and set-asides for warranty claims add another $35, bringing Apple's total cost to $208. The 32GB iPhone 4, meanwhile, has a cost of materials price tag of $195, and a total cost including non-hardware fees of $230.

"The 16GB iPhone 3GS had a BOM [bill of materials] of $185 last summer, so the cost came down a little," said Marshall. "Apple is being very aggressive on its suppliers to lower BOM."

Assuming Apple receives $529 for each 16GB iPhone 4 and $629 for each 32GB model -- those numbers include the subsidies that mobile carriers pay Apple -- the lower-priced iPhone 4 boasts a gross margin of 61% while the 32GB device sports a gross margin of 70%.

Apple sells the 16GB iPhone 4 for $199, and the 32GB model for $299. It does not, however, disclose payments it gets from AT&T or other carriers, leaving analysts like Marshall to guess at the total dollar amount it receives for each iPhone.

"The margins will actually uptick once the iPhone 4 ramps to volume production," Marshall said.

Marshall's analysis includes components and the direct non-hardware costs, but it doesn't take into account research and development, marketing or labor costs. His estimate does include manufacturing and packaging costs, however.

The single most-expensive part of the iPhone 4 is the revamped display, which Marshall pegged at $25, one dollar more than the estimated $24 Apple pays Samsung, Toshiba and others for 16GB of flash memory. LG Display is the most likely supplier of the screen, which for the first time is a sealed unit that includes not only the display but also the touchscreen component.

The memory in the 32GB version of the iPhone 4 sets Apple back $48.

Apple CEO Steve Jobs touted the iPhone 4's screen -- dubbing it the Retina display -- when he unveiled the new model three weeks ago. According to Apple, the iPhone 4's three-by-four-inch display packs four times as many pixels as the iPhone 3GS's screen.

Research firm iSuppli Corp. estimated the BOM of the iPhone 4 at $187.51 for the 16GB model, and like Marshall, said the most expensive part is the display. El Segundo, Calif.-based iSuppli estimated that the Retina display costs Apple $28.50.

According to Marshall, the A4 application processor, a system-on-a-chip designed by Apple but made by Samsung Corp., costs approximately $10, while the camera module -- which powers both the 5-megapixel camera on the back and new 1.3-megapixel front-facing camera -- also runs $10.

For its part, iSuppli estimates that the A4 costs $10.75.

Apple has trimmed its iPhone costs by 29% since it introduced the smartphone in 2007. That year, iSuppli estimated the BOM of the 8GB first-generation iPhone at $263.83, giving Apple a profit margin of nearly 56%.

Marshall said he expects that the more expensive 32GB iPhone 4 will account for 70% of Apple's unit sales of the new model.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com.

Copyright © 2010 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon