Analysts question iPhone margin predictions

Analysts are questioning Bill of Materials costs on Apple's iPhone that surfaced earlier this month, suggesting that Apple's true gross margins may prove to be far lower than predicted. A previous cost analysis of the iPhone predicted a margin of up to 50 percent on every model sold, but other analysts believe actual margins may land nearer to the 20 percent mark. Additionally, analysts are debating the cost of the iPhone's integrated display and related touch-screen technology, according to EE Times Europe. Texas-based firm DisplaySearch suggests that Apple's cost to manufacture the iPhone display nears $60 -- nearly double the amount previously predicted -- as a result of the 3.5-inch 320x480 display as well as the nature of the company's touch-screen technology.

"Such innovation does not occur without cost," said John Jacobs, director of notebook market research at DisplaySearch. "Although Apple and its key component suppliers may choose to amortize the cost of these advanced technologies over a large number of units, our analysis indicates that Apples BOM (bill of materials) cost, including integration, is well above $300 for the 4 GB model. After the costs associated with building, shipping, marketing and selling the iPhone are included, we expect that margins will be closer to Apples typical mid to high 20 percent range."

The research firm notes that the narrow bezel surrounding Apple's iPhone LCD, coupled with the thinness of the component, points to Apple's inability to use a standard display which ultimately increases costs. The firm also believes that the display's glass is thinner than most mobile phone screens, and that the thinness of the display glass combined with required silicon technology supporting the display combine to further increase Apple's manufacturing costs.

Probing further, DisplaySearch adds that Apple's Multi-touch technology will add significant cost above standard touch-screen technology.

"We estimate that adhering the Multi-touch panel to the liquid crystal display adds cost as well. Our estimate for the cost of the Multi-touch panel and the integration of the panel on to the display adds at least $30 to the cost of the display," DisplaySearch said.

A consultant on displays, touch, and mobile computers named Geoff Walker also emailed EE Times Europe to suggest a cost of $30 and $31 for Apple's iPhone LCD itself, with another $3 for the touch-screen sensor.

"Basically it's a projected capacitance touchscreen with clever signal processing (DSP) algorithms to support multi-touch. What's unknown is whether Apple is using the 'self capacitance' or the 'mutual capacitance' version of the sensor that is described in the patent; personally I think it's the latter. This is also the more common structure for existing projected capacitance sensors (for example, from Touch International)," wrote Walker. "Apple has invented anything really new here. Multi-touch already existed; Apple did not invent it. What they have done is what they are famous for -- they have improved something. The touch-gesture vocabulary, the excellent integration of touch into every aspect of the iPhone's operation, and the overall simplicity of operation is what is really new. And it is very, very good!"

Filed under: Apple