Apple boosts margin on iPhone 3G

The 8GB iPhone 3G costs $173 in parts and manufacturing costs

A teardown analysis of the new iPhone 3G has shown that Apple has boosted its profit margins on the device while simultaneously lowering the price.

Analyst firm iSuppli estimates that the 8GB iPhone 3G costs $173 in parts and manufacturing and costs consumers $199.

However, the handset is subsidised by the network operators and the analysts estimate that this subsidy could be as high as $300 per handset.

"The original 2G phone was sold at an unsubsidised $499," said Dr Jagdish Rebello, director and principal analyst at iSuppli.

"However, at a retail price of $199 for the low-end 8GB version of the new 3G model, wireless communications service carriers will be selling the product at a subsidised rate, using a common business model for the mobile-handset market."

This means that, with subsidies from carriers, Apple will be selling the 8GB version of the iPhone 3G to carriers at an effective price of about $499 per unit, the same as the original product.

The most expensive modules of the phone's hardware are the Nand Flash memory and the improved display, according to the teardown estimates.

One of the cheaper parts is the GPS module, which the analysts estimate to cost just $3.60 per unit.

The analysts said that previous versions of the iPhone were making margins of around 50 per cent per handset but that, with the subsidy from the network providers, Apple is now making even higher margins.

"Hardware is vital to Apple profits, valuation and revenue in the consumer electronics and wireless communications realms," said Rebello.

"In fact, two-thirds of Apple's revenue from the iPod is still derived from hardware, while only one third is from the iTunes service and accessories. The second-generation iPhone is no exception."