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Day February 22, 2012

5by5 | The Critical Path #26: Zeitgeist

  • Act I: An analysis of the manufacturing cost structure for iPhones
  • Act II: The $10 billion App store economy and how to quantify value of apps per iPhone
  • Act III: Rather than seeing it as the exception, Apple, like GM and IBM may be the rule that defines an era.

This episode is sponsored by AppsFire and MailChimp.

5by5 | The Critical Path #26: Zeitgeist.

How much does it cost to manufacture an iPhone?

An iPhone generates approximately $650 in revenue for Apple. This figure has remained fairly steady over time. Using deduction from overall margins, it’s possible to estimate the gross margin on the product to be around 55%.

That means that the cost of goods sold (COGS) for the iPhone is about $293. Is that a lot? Where does that money go? What else does it tell us about how the company operates?

To find out we need to understand the cost structure of phone building.

Typically there are four main categories of costs for a phone:

  1. Bill of materials (BOM). This represents the cost of the components that go into the device. These are paid to suppliers.
  2. Transportation/warehousing. This is the cost to transport and store the product before sale. This is paid to shipping companies and warehousing.
  3. Manufacturing cost (including labor). This is paid to contract manufacturers.
  4. Warranty expense. This is paid back to customers for returned product that can no longer be sold.

We can estimate a device’s BOM through a teardown analysis