How much does an iPhone really cost?

I came across this post at Pharyngula, where the crux of the matter is: Apple makes a huge profit from its iPhone, and it would only make a small difference to Apple to assemble it in the US than in China. The data:

The total component cost of an iPhone in 2009 was $172.46. Workers in China assemble the iPhone, but because their wages are low the assembly cost per phone (labeled manufacturing costs in the table below) is quite small, only $6.50 a phone. The total production cost per phone is $178.96.

Apple has a 64% profit margin on the iPhone! That’s not a surprise, though — I’m used to tech companies charging a premium price for the fancy toys, and Apple has never had a reputation as a budget brand.

Apple may well make large profits, and may well make good profits even if it does its assembly in the US. However, this is extremely shoddy work, and I’m surprised Dr Myers uses this information without comment.

The key word in the data is “total production cost”. It’s what Apple spent in actually making the device. However, that is far from the actual cost of an iPhone. For this, you have to take into account the years of research that Apple poured into development; the millions of dollars spent developing and rejecting prototypes; the time and energy spent in polishing its Operating System (iOS). This, of course, is in addition to actually conceiving, designing, and building iOS, the cost of which is completely neglected in the account above.

Consider, also, the fact that Dr Myers gets, as an iPhone user, free iOS updates for an average of three years after buying a new device. Who pays for this?

It is extremely naive to associate the profits that Apple makes on an iPhone solely to the cost that it incurs in manufacturing the product. If indeed Apple makes insane amounts of profits from its iPhone, it should not be very difficult for its competitors to undercut the iPhone and provide a comparable user experience at a much cheaper price. For sure, it can be said that the products may not be as good; but ‘almost as good’ would work very well at half the cost, no? And yet the iPhone juggernaut keeps on rolling.

Fact of the matter is, modern Apple products are finely designed, aggressively priced products, so much so that its competitors simply can’t produce similar products at a similar price point.

The data being used here is simply bunkum. Dr Myers, you really could have done better. (Also, where do you think every other manufacturer does its assembly?)


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