What Does it Cost to Make an iPhone?

October 1, 2013 Leave a comment

September 30, 2013, 11:52 AM

What Does it Cost to Make an iPhone?

BEN ROONEY

A 16GB iPhone 5S costs Apple Inc. $213 in materials, while a 16GB 5C comes in at $156, according to a report published Monday byUBS AGUBSN.VX -1.33%. The tear-down shows the big saving that the “unashamedly plastic” case of the 5C represents, coming in at $42 less than the aluminum body of the 5S. The other big saving is the $7 fingerprint sensor. Apple lists an unlocked 16GB iPhone 5S on its site at $649 and an iPhone 5C at $549. In a report of exacting detail, UBS estimates gross margins of around 50% for both devices. The report notes: Adding box contents, manufacturing, and non-BoM [Bills of Material] related costs, we estimate gross margins could ramp to 45-55% for the iPhone 5S and 48-54% for the iPhone 5C overtime as production scales and matures. In our view, non-component costs are likely to reach to approximately 33-40% of total device costs, largely driven by deprecation and software amortization expense. We estimate Apple’s depreciation expense is roughly $25 per device, accounting for the company’s sizable investments in non-leading edge production equipment. We assume Apple’s warranty accrual rate is 1.8% and manufacturing, including freight, to equal $18-20 per unit. The display, which UBS source to Samsung Display Co., LG Display034220.SE +0.39% Co and Sharp Corp.6753.TO -0.56% is the biggest cost (20% of 5S material costs, 27% for the 5C). UBS estimates it comes in at $42.11. The tear-down reveals is how intertwined suppliers and makers are. While Apple andSamsung Electronics Co.005930.SE +0.95%, Ltd. have been locked in a series of legal battles conducted around the world and fight each other for consumers, Samsung is a key part of Apple’s success in making its “retina display” screen. Apple also uses Sony Corp.’s6758.TO +0.14% sensor in its camera. Sony is fighting to be the number three handset maker by value in the world, behind Apple and Samsung.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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