iPhone 3GS costs carriers more to offer

The entry level version of Apple's new baby, the iPhone 3GS 16GB, costs slightly more to manufacture than the original model, despite an almost identical design, yet retails for the same price at $199.

James Middleton

June 25, 2009

2 Min Read
iPhone 3GS costs carriers more to offer
iPhone 3GS costs carriers more

The entry level version of Apple’s new baby, the iPhone 3GS 16GB, costs slightly more to manufacture than the original model, despite an almost identical design, yet retails for the same price at $199.

This discovery, among others, was revealed by teardown and device research firm iSuppli, which calculated the bill of materials (BOM) for the iPhone 3GS.

The entry level, 16GB version of the iPhone 3G S carries a BOM cost of $172.46 and a manufacturing expense of $6.50, for a total of $178.96, which is slightly higher than iSuppli’s estimate of $174.33 for the original 8GB iPhone 3G in July 2008.

But Andrew Rassweiler, director and principal analyst for teardown services at iSuppli notes that the same retail price of the two devices means that “the actual price of the phone paid by the service provider is considerably higher, reflecting the common wireless industry practice of subsidizing the upfront cost of a mobile phone and then making a profit on subscriptions.”

This lends some credence to the theory that O2 UK could afford to offer the Nokia N97, the HTC Hero and it looks like the Samsung Jet too, because the carrier has spent all its subsidy budget on the iPhone 3GS.

Moreover, iSuppli’s analysis does not include other costs, including manufacturing, software development, shipping and distribution, packaging, royalty fees and miscellaneous accessories, suggesting that the cost of the 3GS is considerably higher than previous models.

And given that the feature set on the new device is nearly the same as the previous model in the iPhone line, you might think the product’s component selection would be virtually unchanged. But the teardown reveals some interesting changes in the parts and suppliers.

The significant changes are video capture, a 3 megapixel camera, and a digital compass, but otherwise the 3GS hardware feature set is not much different from that of the 3G.

“By leveraging this commonality to optimize materials costs, and taking advantage of price erosion in the electronic component marketplace, Apple can provide a higher-performing product with more memory and features at only a slightly higher materials and manufacturing cost,” Rassweiler said.

Nonetheless, there are a few key differences in component selection compared to the iPhone 3G introduced a year ago. One of the more noteworthy changes is the use of a Broadcom single chip Bluetooth/FM/wifi device, which replaces two separate chipsets; AKM Semiconductor’s electronic compass and STMicroelectronics’ accelerometer; Infineon remained supplier of the phone’s critical baseband chip; while Toshiba scored a big win with its 16GB Multilevel-Cell (MLC) NAND flash memory unit.

iSuppli also said that Samsung maintained its position as iPhone’s applications processor supplier, which is the fourth most costly component in the iPhone 3GS after the NAND flash, the display module and the touchscreen assembly.

About the Author(s)

James Middleton

James Middleton is managing editor of telecoms.com | Follow him @telecomsjames

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