The iPhone Cash Machine

Apple doesn’t make the iPhone itself. It neither manufactures the components nor assembles them into a finished product. The components come from a variety of suppliers and the assembly is done by Foxconn, a Taiwanese firm, at its plant in Shenzhen, China. The “teardown” graphic below, based on data from iSuppli, a market-research firm, shows who makes what inside the iPhone, and how much the various bits cost. Samsung turns out to be a particularly important supplier. It provides some of the phone’s most important components: the flash memory that holds the phone’s apps, music and operating software; the working memory, or DRAM; and the applications processor that makes the whole thing work. Together these account for 26% of the component cost of an iPhone.

As you’ll notice, Samsung provides 26% of the parts for the phone. Apple is currently suing Samsung and accusing it of ripping off the look and feel of Apple products. Granted, they’re separate divisions at Samsung, but it has to make the relationship between the two companies awkward.
Another thing to note in this breakdown: It costs Apple just $178 in components for a phone that sells at an average price of $560.

The second part of the graphic shows that, beyond manufacturing and component charges, the lion’s share of the iPhone’s $560 price tag goes to Apple, though just how much it spends on software development, R&D, marketing, shipping, packaging and so forth is unclear. But Apple now commands the largest slice of the handset industry’s profit share, so its margins are still impressive even when these costs have been taken in account. Apple also became the world’s largest supplier of smartphones in the second quarter (see chart), with Samsung in second place. And on August 9th, the same day as its victory over Samsung in the European courts, Apple even briefly surpassed Exxon Mobil to become the world’s largest company by market capitalisation. So although Apple does not actually make the iPhone, it certainly makes a lot of money from it.

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