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iSuppli: 3G iPhone Subsidy About $300

6/24/2008 04:13:00 PM Eastern

El Segundo, Calif. — Cellular carrier AT&T will pay about $300 to subsidize the consumer price of a 3G iPhone, iSuppli estimated.

The research and consulting company performed a preliminary teardown analysis of the 8GB 3G iPhone, which will retail at $199 with two-year service contract, and put its hardware bill of materials (BOM) and manufacturing cost at $173. The figure doesn't include other costs, including software development, shipping and distribution, packaging and miscellaneous accessories included with each phone.

“With subsidies from carriers, Apple will be selling the 8MB version of the second-generation iPhone to carriers at an effective price of about $499 per unit, the same as the original product,” which was sold unsubsidized but with Apple sharing in monthly subscription revenues, iSuppli said.

Once the 3G iPhone becomes available, iSuppli said it would perform an actual, detailed teardown of the new iPhone’s components and costs.

The 3G iPhone will be available July 11 in the United States at a suggested retail of $199 for the 8GB model and $299 for the 16GB model, with a two-year contract, through Apple and AT&T stores. It also goes on sale that day in 21 other countries.

“At a hardware BOM and manufacturing cost of $173, the new iPhone is significantly less expensive to produce than the first-generation product, despite major improvements in the product’s functionality and unique usability,” said Dr. Jagdish Rebello, iSuppli director and principal analyst. “The original 8GB iPhone carried a cost of $226 after component price reductions, giving the new product a 23 percent hardware cost reduction due to component price declines.”

Based on previous teardown analyses, iSuppli has found Apple’s iPod and iPhone products to be typically priced about 50 percent more than their BOM and manufacturing costs. “With the new iPhone sold at a price of $199 and the estimated subsidy of $300, Apple will achieve an even higher BOM/manufacturing margin,” iSuppli said.

The new iPhone’s BOMs will decrease with future component prices declines to $148 in 2009, down 37 percent from 2008’s $173 in 2008, iSuppli forecast. “If the 3G iPhone design is unchanged, the cost will decline to $126 in 2012,” added Tina Teng, iSuppli wireless communications analyst.

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