True Costs Revealed: Disseminating an iPhone 3G S

New research estimates that the latest edition of the iPhone costs $178.96 to manufacture. That's only a little below the price customers pay, though Apple makes a much bigger profit thanks to AT&T subsidies.

The figures come from iSuppli, a firm which specializes in assessing the finances of electronic manufacturing, particularly the way different elements of the process cost. While some of their staff do typical financial analysis work, others take gadgets apart and figure out what's inside.

For those who are similarly nosy but don't want to destroy their new phone, the firm has published a great image of the inner iPhone 3G S parts.

Breaking Down the Price of an iPhone 3G S

The figures relate to the 16GB edition of the new iPhone 3G S. The cost of production is only around $4 higher than the 8GB model of the original iPhone 3G (the equivalent entry level model). That's despite several new features including a digital compass and video recording capabilities. However, Apple has achieved some cutbacks by putting Bluetooth and wireless Internet capabilities on the same chip. (Source: isuppli.com)

The research also shows at least nine different firms supply parts used in the device. The three most expensive parts, the flash memory, display and touchscreen, all came from Toshiba in the model iSuppli looked at, though it says there's a strong chance Apple may source these components from multiple firms.

The 16GB flash memory costs Apple $24, suggesting that there may be a particularly high margin on the 32GB edition of the phone, which costs buyers an extra $100.

It's worth remembering that Apple's actual costs are higher than the $178.96 iSuppli lists. That figure only covers the parts and the cost of putting them together; it doesn't account for the research and development of the phone, marketing, packaging or distribution costs.

iPhone Subsidies in Question

How much Apple gets for each phone is uncertain.

New buyers pay $199 with an AT&T service contract, $399 to upgrade from a previous iPhone, and $599 to buy without signing up to an AT&T deal. The $199 goes to AT&T which then pays a higher fee (assumed, but not known for certain, to be $599) to Apple, the difference being a "subsidy" in return for getting new subscribers. (Source: tgdaily.com)

That certainly suggests that AT&T actually pays considerably more than Apple's total costs. While that makes sense -- it's how Apple makes a profit -- only part of the money AT&T hands over is truly subsidizing the cost of the phone. That means that the implication that the $599 charged to non-AT&T customers for an "unsubsidized" phone simply reflects the "true cost" of the phone is somewhat misleading.