When Apple releases a new device, market research firm IHS takes a close look at the components used in the gadget to estimate its bill-of-materials (BOM). This rough approximation of what it costs Apple to build each device can provide insight into how much profit Apple makes on the sale of each iPhone. Recently, IHS shared its evaluation of this year’s new iPhone 5s and iPhone 5c with AllThingsD.
iPhone 5s Estimated Costs
According to IHS, Apple likely spends a minimum of $191 on the iPhone 5s with 16GB of onboard storage. Adding the estimated cost of assembly ($8) puts the total cost at around $199 per device. At the high end, a 64GB iPhone 5s probably costs Apple around $208.
It’s worth noting that these estimates are close to last year’s estimate for the lowest storage option of the iPhone 5, which was said to have cost a minimum of $205 by IHS. This suggests that Apple has managed to reduce costs over time while introducing new features like the fingerprint sensor ($7 per unit) and the RF chips specifically designed for 13 LTE bands.
iPhone 5c Estimated Costs
The iPhone 5c is estimated to have a total cost of around $173 for the 16GB model or $183 for the 32GB version, with an additional $7 for assembly. Similar to the iPhone 5s, Apple has been able to reduce costs while introducing new components.
New Components and Costs
The addition of unique new components like the fingerprint sensor ($7 per unit) and RF chips specifically designed for 13 LTE bands are notable cost increases. However, IHS estimates that these components are cheaper than expected, with the RF chips costing around $32 per unit (down from $34 estimated for the iPhone 5’s 5-band LTE radio).
Limitations of IHS Estimates
While IHS estimates provide a general idea of Apple’s costs, it’s essential to remember that these figures may not be entirely accurate. Apple never reveals its actual device or supply costs, making it difficult to verify the accuracy of IHS estimates.
However, given IHS’s experience and long history in market research, their estimates are likely within the correct ballpark. The key takeaway is that Apple’s ability to negotiate lower component prices and drive margins up remains strong, even with new features like fingerprint sensors and RF chips designed for 13 LTE bands.
Implications for Apple
The estimated costs of the iPhone 5s and iPhone 5c highlight Apple’s continued focus on reducing costs while introducing innovative features. This strategy has allowed Apple to maintain its profit margins despite increasing competition in the smartphone market.
Given Cook’s efficiency expertise, it seems likely that Apple will continue to optimize its supply chain and negotiate better component prices. As a result, Apple’s ability to drive profitability through cost savings may be stronger than ever.
Apple’s Cost Structure
While IHS estimates provide insight into Apple’s costs, there are several factors to consider when evaluating the company’s overall cost structure:
- Component costs: Apple’s ability to negotiate lower component prices has been a key factor in its success.
- Manufacturing and assembly costs: The estimated cost of assembly ($8 for iPhone 5s) is relatively low compared to other manufacturers.
- Research and development (R&D) expenses: As a leader in innovation, Apple invests heavily in R&D to create new features like fingerprint sensors and RF chips.
Conclusion
IHS estimates suggest that Apple’s costs for the iPhone 5s and iPhone 5c are around $191 and $173 respectively. While these figures may not be entirely accurate, they provide valuable insight into Apple’s ability to reduce costs while introducing innovative features. Given Cook’s efficiency expertise, it seems likely that Apple will continue to optimize its supply chain and drive profitability through cost savings.
Recommendations
To further explore the implications of IHS estimates for Apple’s business strategy:
- Invest in R&D: Apple should continue investing heavily in research and development (R&D) to create innovative features like fingerprint sensors and RF chips.
- Negotiate better component prices: Apple should leverage its scale and market position to negotiate lower component prices from suppliers.
- Optimize supply chain: Apple should focus on optimizing its supply chain to reduce manufacturing and assembly costs.
By understanding the implications of IHS estimates for Apple’s business strategy, investors, analysts, and industry observers can gain a more informed perspective on the company’s future prospects.
