The launch date for the iPhone 5 is approaching and speculation is rampant about what the features of the new phone will be. Recent financial figures revealed that, despite only owning around 10% of the global mobile handset market in 2011, Apple collected 50% or more of the industry's available profits. It seems that the company must be making a sizable mark-up. Let's find out how much of a profit Apple is making off the sales of iPhones by looking at the manufacturing costs of its iconic product.
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The current model of iPhone - the 4s - will set you back at least $649 if you purchase the 8GB version outright. The 16GB model will cost you $649 and the price goes up to $749 when you purchase the 32GB model. The 64GB model will set you back a staggering $849.
Sum of Its Parts
iSuppli, which is known for its gadget component costs analysis, released a breakdown of the parts that make up the iPhone 4S. The most basic 16GB model carries a bill of materials worth $188. This total is a long way from the sale price of $649.
Of course, there are labour costs to manufacture this complex piece of kit, but recent investigations suggest that these certainly do not bridge the gap between material costs and sale price.
Earlier this year, ABC's "Nightline" show went into the Chinese factories of Foxconn, where most of the world's Apple products - iPads, iPhones and Mac computers - are manufactured. The investigation revealed that workers earn just $1.78 per hour, work long hours and live in dorms with fellow employees.
Asymco analyst Horace Dediu used the "Nightline" report to estimate that Apple pays labour costs of between $12.50 and $30 for every iPhone it makes, which represents just 2-5% of the iPhone's sale price.
The New York Times has harshly criticized the labour practices of Apple's factories, and featured an interview with a former employee of Foxconn, who said, "Apple never cared about anything other than increasing product quality and decreasing production cost ... Workers' welfare has nothing to do with [Apple's] interests."
So if the materials cost roughly $188, and Dediu has calculated that an additional $93 is spent on manufacturing its smartphone, (a cost that includes the labour costs, transportation, storage and warranty expenses) we reach a total of about $281 to manufacture an iPhone that retails at $649. This represents a profit for Apple of $368 per iPhone.
The Bottom Line
Apple is a very successful company, and as consumers, we pay a premium price for the products the company makes. Some people purchase Apple products to become part of the 'trendy' Apple brand. However, for Apple to maintain its high profits and low manufacturing costs, the company pays its workers in China low wages. Many people wonder if these labour practices will tarnish Apple's image as a progressive company. During the "Nightline" special, the lead journalist asked a Foxconn factory executive if it would be possible for Apple to double wages at Foxconn. The executive responded, "Why not? It would be good for China and for morale." However, for now, the iPhone's hefty price tag puts it out of the price range of the workers who manufacture it.