iPhone's Innards: Cheap Chips, Fat Margins

The IT gurus at iSuppli are at it again, tearing apart the same hot new phones the rest of us handle with kid gloves.

This time, iSuppli got its calloused hands on the Apple (Nasdaq: AAPL  ) iPhone 3G S -- and ripped the thing to shreds, just to see what made it tick. Here are the most interesting findings from iSuppli's teardown extravaganza:

  • Broadcom (Nasdaq: BRCM  ) slapped a single-chip Wi-Fi, FM radio, and Bluetooth chip into the the 3G S, shouldering out the discrete chips from Marvell (Nasdaq: MRVL  ) and Cambridge Silicon Radio found in last year's model.
  • The main engine powering this phone remains a Samsung processor based on technology from ARM Holdings (Nasdaq: ARMH  ) . This year's model is about 50% faster than its predecessor.
  • iSuppli's particular iPhone contained 16 GB of flash memory from Toshiba, worth about $24. It's the most expensive component in the device, even though it's just marginally more costly than the 8 GB of memory in the original iPhone 3G that was deconstructed last year. Also, Toshiba isn't likely to be the only memory provider, since this commodity market also offers plentiful supply from the likes of Samsung or Micron (NYSE: MU  ) .

The total bill of materials and manufacturing adds up to roughly $179 per unit, by iSuppli's estimates. That's within a couple of bucks of the previous model's original cost. Since the cost to consumers also stayed comparable at $199, one could surmise that Apple will see gross margins similar to the last model. The wild card in that equation is whether AT&T (NYSE: T  ) pays Apple a higher or lower subsidy than it used to. Analysts assume a pretty constant $200 subsidy per phone, for a better-than-50% total gross margin.

The iPhone tends to sell in huge enough numbers to make a dent in any supplier's revenue tally. Apple sold 3.8 million of the plain old 3G model last quarter, even as many consumers probably sat on their hands and waited for this model refresh.

The iPhone is clearly a huge profit driver for Apple when you include the carrier subsidies, and it's refreshing to see such consistent margins in the face of increasing smartphone competition. But don't forget to take a look at the component suppliers, too. Broadcom's radio signal chip may only cost about $6 each, but multiply that by, say, 4 million units per quarter, and you'll get about 3% of Broadcom's total revenue.

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  • Report this Comment On June 25, 2009, at 9:57 PM, SPQRusa wrote:

    The most significant change isn't the processor or radio chips, and contrary to this article, the most significant change from a programming and performance perspective is the PowerVR SGX535 chip from Imagination Technologies. This chip provides support for shader graphics versus the old fixed-function graphics in the iPhone 2G/3G MBX chip. It is also the most significant change that needs new programming to take advantage of its increased performance.

  • Report this Comment On July 01, 2009, at 8:29 PM, listenhere wrote:

    ARMH's position in the smartphone revolution is interesting. If we have a continued sluggish economy (or even if we don't) ARMH has the stuff to significantly lower the price point at which smartphones and other MIDs can be offered. The old style Microsoft structure is going to be out of place in the new mobile world. I have a good post on this at my blog www.goodstockinvesting.blogspot.com - there is hardly any better stock positioned to ride the smartphone trend and the cloud computing trend than ARMH.

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