Seeking Mass Market Acceptance, Apple Stresses Cost Reduction for iPhone 3G

El Segundo, Calif., Jul. 15, 2008–The new iPhone 3G sports an evolutionary design that favours cost reduction instead of cutting-edge features, supporting Apple Inc.’s goal of expanding its market share and achieving a worldwide presence for the product, according to a physical teardown analysis conducted this weekend by iSuppli Corp.
iSuppli’s Teardown Analysis Service on July 11 obtained an iPhone 3G and commenced a dissection in order to identify component suppliers, as well as to determine preliminary part and system costs.
Per the teardown analysis and subsequent examinations by analysts, iSuppli has issued a preliminary estimate of $174.33 for initial production costs for the 8Gbyte iPhone 3G.
This figure consists only of the iPhone 3G’s combined Bill of Materials (BOM) and manufacturing expenses. The total doesn’t include other costs, including software development, shipping and distribution, packaging and miscellaneous accessories included with each phone.
iSuppli’s cost estimate is nearly identical to the $173 BOM predicted in iSuppli’s virtual teardown issued to the public in late June.

Cost considerations rule in new iPhone
At $174.33, the BOM and manufacturing cost of the new iPhone is markedly less than the $227 that iSuppli estimated for the first-generation, 8Gbyte 2G iPhone in June 2007. While using a new design, the iPhone 3G really represents a refinement of the original iPhone 2G, according to iSuppli.
“The addition of 3G wireless capability represents an evolutionary design step for the iPhone, not a revolutionary one,” said Andrew Rassweiler, teardown services manager and principal analyst at iSuppli. “iSuppli believes Apple aimed for a more cost-effective design for the 3G iPhone compared to the 2G, in order to lower the retail price–which will allow the company to seed adoption and to capture maximum market share now–while the company still has buzz and a perceived differentiation relative to its competitors.”
The iPhone 3G’s use of an Infineon Technologies AG baseband chip that supports the HSDPA, WCDMA and EDGE air standards, plus the integration of three separate TriQuint Semiconductor Inc. tri-band WCDMA Power Amplifier Modules (PAMs), reflects the fact that the iPhone 3G is suited for sale worldwide.

Infineon takes key baseband slot
The attached table presents iSuppli’s preliminary analysis of components and suppliers for the iPhone 3G, determined via physical teardown. iSuppli has conducted a teardown analysis of only one 3G iPhone. While there are variations in the components and suppliers for individual products, iSuppli believes that the vendors and parts identified in its teardown likely are representative of all iPhone 3Gs now being shipped–excluding certain memory devices and other commodity parts that are available from multiple sources.
After iSuppli has completed an analysis of a larger sample of iPhones, we will issue further information to the public.
Infineon AG was the big winner in the key baseband section of the iPhone 3G torn down by iSuppli, contributing its HSDPA/WCDMA/EDGE chip that includes dual ARM926 and ARM7 microprocessor cores.
Solely-sourced items include Infineon’s baseband solution, RF transceiver and Global Positioning System (GPS) devices; Samsung Electronics Co. Ltd’s applications processor integrated with Synchronous DRAM (SDRAM); Marvell Technology Group Ltd.’s WLAN device and Cambridge Silicon Radio’s (CSR’s) Bluetooth chip.
Multi-sourced items include Toshiba Corp.’s 8Gbyte NAND flash memory chip. Apple’s other likely sources for this part include Samsung.

Design insights
Other observations made by iSuppli’s analysis team include:

· The redesigned internals of the iPhone 3G include only one large Printed Circuit Board (PCB), instead of the two nested PCBs found in the 2G version. The iPhone 3G uses a 10-layer board, compared to the less-expensive six-layer PCBs commonly employed in mobile handsets.
· The battery is not soldered into the iPhone 3G as it is done in the 2G, making it more serviceable.
· Some chips have the Apple logo or are unmarked. Although iSuppli has been able to identify many of these parts and their true manufacturers by de-capping the chips and examining their dies, some devices remain unidentifiable at this time.

iPhone costs
Beyond the $174.33 BOM and manufacturing cost of the iPhone 3G, Apple is spending an estimated $50 on IP royalties per unit shipped. With the 8Gbyte version retail-priced at $199, and the estimated $300 subsidy paid by AT&T to Apple for each unit, Apple is selling the product at a price of $499, and spending $224.33 to produce each one. This gives Apple a BOM, manufacturing and royalty margin of 55 percent for each 8Gbyte iPhone 3G unit sold.
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