EL SEGUNDO, CA – Apple’s second-generation iPhone is expected to carry an initial hardware bill of materials and manufacturing cost of $173, according to preliminary analysis by iSuppli Corp.
 
In advance of the release, iSuppli has performed a virtual teardown; once the 3G iPhone becomes available, iSuppli will perform an actual, detailed teardown of the components and cost structure. (The new iPhone is due out July 11.)
 
“At a hardware BoM and manufacturing cost of $173, the new iPhone is significantly less expensive to produce, despite major improvements in the product’s functionality and unique usability, due to the addition of 3G communications,” said Dr. Jagdish Rebello, director and principal analyst for iSuppli. “The original 8 Gb iPhone carried a cost of $226 after component price reductions, giving the new product a 23% hardware cost reduction due to component price declines.”
 
“The original 2G phone was sold at an unsubsidized price of $499,” Rebello noted. “However, at a retail price of $199 for the low-end 8 Gb version of the new 3G model, wireless communications service carriers will be selling the product at a subsidized rate, using a common business model for the mobile-handset market. The size of the subsidy paid by the wireless carriers to Apple will be about $300 per iPhone, iSuppli estimates. This means that with subsidies from carriers, Apple will be selling the 8 Mb version of the second-generation iPhone to carriers at an effective price of about $499 per unit, the same as the original product.”
 
For the first version, Apple was given a portion of the wireless carriers’ revenue from service subscriptions. With the second, Apple is not garnering any service revenue, making it more imperative the company cut a profit on the actual hardware through the carrier subsidies, says iSuppli.   
 
“Two-thirds of Apple’s revenue from the iPod still is derived from hardware,” said Rebello.
 
iSuppli has observed iPod and iPhone products typically are priced about 50% more than their BoM and manufacturing costs. With the new iPhone sold for $199 and the estimated subsidy of $300, Apple will achieve an even higher BOM/manufacturing margin, the research firm says.
 
The 3G iPhone’s BoM costs will decrease as component prices decline; the BoM/manufacturing cost will decrease to $148 in 2009, down 37% year-over-year, according to iSuppli.
 
“If the 3G iPhone design is unchanged, the cost will decline to $126 in 2012,” said Tina Teng, wireless communications analyst at iSuppli. 

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