How Apple is selling the iPhone so cheaply – and still making a packet

If you’ve been wondering how Apple can sell the iPhone so cheaply at $US199 when comparable smart phones are so expensive, then here’s the answer: the eight-gig iPhone costs Apple just $US173 to make.

If you’ve been wondering how Apple can sell the iPhone so cheaply at $US199 when comparable smart phones are so expensive, then here’s the answer: the eight-gig iPhone costs Apple just $US173 to make.

IT industry research firm iSuppli has done a “virtual teardown” of the iPhone to see how much each component costs. The research firm estimates the chips and other components in the handset add up to $US164, with another $US9 on top for assembly of the device, bringing the total to $US173.

While that figure does not include other costs, including the cost of software development, shipping, distribution, packaging and accessories included with each iPhone, the cost to build the new model is a big improvement from the first version, which cost about $US226 to make, according to iSuppli.

Of course, Apple’s profit will be far greater than the $US26 difference between the cost to build and the sale price. Mobile phone service providers will also subsidise the handsets by paying Apple for each unit. iSuppli estimates the phone company will hand Apple $US300 per unit, but some analysts say it could be as much as $US350.

Regardless of the precise size of the subsidies, it is clear that Apple will be enjoying extremely strong margins from the iPhone. And they will only get better – iSuppli estimates the price of making the phone is likely to drop to $US148 in 2009 thanks to further declines in component pricing.

The iPhone goes on sale in Australia on 11 July. Optus and Vodofone, which will sell the iPhone in Australia, are yet to release details on pricing or plans.

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