iPhone 4S part costs breakdown compared to Nokia Lumia 900 illustrate Apple's insane margins

iPhone 4S part costs breakdown compared to Nokia Lumia 900 illustrate Apple's insane margins

Recent research from iSuppli shows that even though the iPhone 4S is more expensive than the Lumia 900, Apple actually pays less per part than Nokia does. The biggest individual price difference is between displays; Apple pays $37 for theirs, Nokia pays $58. All told, Apple pays $190 in parts, while Nokia pays $209, which leads to Nokia making a $241 margin per device, and Apple making $459.

To be fair, Apple has some pretty great agreements in place with manufacturers thanks in no small part to the massive scale at which they place orders, plus the Lumia 900 has a bigger screen and an LTE antenna to pay for. In any case, when boiling costs down to a per-device basis, it's easy to see why Apple is sitting on a mountain of cash. You would think that Nokia would have mastered churning out a bajillionty phones at scale and reaping the benefits of scale, but those glory days of the dumbphone reign are long gone, and clearly not translating well to their future in smartphones.

As much as we can on Nokia for having such slim margins, that's more a result of their market position rather than cause of it; Windows Phone is still very young, and even though it's set to overtake BlackBerry market share given its current momentum, it will be a long time still before Nokia (or anyone else) will be able to see the same margins as Apple.

Source: WSJ

Simon Sage

Editor-at-very-large at Mobile Nations, gamer, giant.

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iPhone 4S part costs breakdown compared to Nokia Lumia 900 illustrate Apple's insane margins

41 Comments

Apple also writes their own operating system and has to make up the cost on that. Nokia licenses their OS from Microsoft. Think that might have something to do with the difference in hardware margins?

Are you really that stupid? The R&D alone could be in the hundreds of thousands dollars, if not, millions. There's overhead like salaries...software and hardware engineers don't come cheap, lab supplies and other misc equipment. Then there's the general costs of doing business and paying taxes. And oh, don't forget, Apple also has to make a profit. Yeah I said p-r-o-f-i-t. I don't know any company who is in business to break even or lose money, do you?

But obviously it's possible that the reason for the large margin is to cover the cost of their own OS. They're excluding software costs, but that doesn't mean the cost isn't there.
That said, the costs are probably somewhat negligible, and apple is probably pulling in a fair bit of extra cash, simply because they can. People will buy their devices at that price, so why not charge that much? I'm certain their reinvesting all that money into R&D on the next big thing, right? RIGHT!?

The cost to develop the OS verse the cost the buy the OS. Either way each is paying for the OS they are using. Since Apple is sitting on a huge mountain of cash and iOS is not a very impressive OS compared to all the other modern ones, I don't think the costs going to the OS development in anyway justify those margins.

gosh, reading comments on this site is really painful. There are too many uneducated people in the world. Simon clearly doesn't understand the concept of a margin. Those numbers from isuppli have next to no meaning. Erik, you don't know the first thing about operating systems design.

Is the lumia made in a sweatshop type inviroment like the iPhone? They have made promises to require higher standards, I'm curious to see how it turns out. You can checkout the petition sent to apple on change.org I think, maybe change.com

Apple spends less because they do it in such a greater volume! It should be basic common sense here. They outpace Lumia 900's by many many many many times over (and I believe things like screens are used in the ipod touches too making it such a larger order than just iphones)
With volume comes lower cost.
And the profit margin is made off the carriers. Very few people are buying them at $649.

Off contract phones are sold pretty much everywhere other than the US. People do pay full price.

Apple squeezes their suppliers. They need Apple as a customer more than Apple needs them...add the sheer volume they buy in + apple tax and you have a winning combo

That's a great point, exactly why Samsung still covet the business they get supplying components to Apple regardless of their phone division being dragged through the courts in several countries!

You have absolutely no clue of the scope of Samsung's current domination in consumer electronics, do you? Samsung wouldn't be supplying Apple unless they were making money off them.
And I'd wager there is nobody else who could reliably supply Apple with all their components in the insane numbers they buy them at.

As Geoff said, there is the software side with Apple, Microsoft picks that up. And can we please stop with the "Apple Tax"? You never hear about the BMW tax, etc. you get what you pay for.

You do get what you pay for, apple makes quality products and they cost more. That is what I meant by Apple tax.

You do get what you pay for, apple makes quality products and they cost more. Apple uses the same components as anyone else but charges more for their end product. You pay up for the "experience". That is what I meant by Apple tax.

Whether developed in house or purchased from another developer both companies are paying for the software. The margins wouldn't change for that unless one was actually paying more which is unlikely if you were to average out salaried staff verse a license agreement. You need to remember that the company they are licensing from also needs to pay their staff salaries.
As for the Apple Tax, BMW isn't known for using older tech (in comparison to current competitor offerings) to cut their costs.

Actual truth is apple is over charging its customers and everyone with an itoy has been duped into thinking everything is as usual... The "experience" as some of you put it does not cost the premium you are being charged!!!

I have always said Apple is taking advantage of their customers and their customers boast about it with great pride ["richest company", "piles of cash", etc].

How is Apple ripping anybody off people have the choice to buy their products and we buy them with free choice we all know the costs, same could be said about the textiles Industry people pay stilly money for clothing but only cost a fraction to produce.

You don't quite understand what he said, do you?
If you want to pay more than something is worth and are happy about it, well good for you. But there is no doubt Apple is taking advantage of consumers, their profit margins, piles of cash, and huge market gains are indisputable proof of that. Good for shareholders and that current "root of all evil 1%", not so good for consumers and the "99%", but the 99% still supports it anyway. Get the irony?

This is not a very clever article! - Apple can charge 200 USD more than Nokia because of cool design and great marketing. Therefore, their margin is 200 USD higher. - End of the story.

Agreed!
Not clever at all. A product may cost only a few dollars to manufacture, but what you are ignoring is the research costs, development, testing, capital outlay. You cannot compare companies by calculating their margins on their components.
Using the same approach we could say that Apple gives their customers more in the way of software, research, etc. Which is why Apple has such a devoted following. Their products are more often than not industry changing. It costs money to do that kind of R&D.
A very biased article...

I also have to agree that this is not a clever article. There are the indirect costs of these devices like production labor, machine maintenance, for parts for suppliers and final assembly at Foxconn, R&D at Apple, software development costs, shipping and international taxes like what you said. Granted even after all those costs, Apple makes high margins for every device but its not $459 per iPhone.
This article shouldn't have been posted without looking at the whole picture.

Some time ago I have bought a very nice painting for my bedroom.
I paid it 400Euros and I really love it.
Actually the painter paid 10 Euro for the large canvas and 15 euros for the paint, plus around 40 Euro to place it in a nice Frame.
Did I overpay the painting?
Some things are wort more than the amount of the single parts...

Of course the Lumia costs more to produce, it has better components and is made at smaller volumes. No mystery there.
And I wouldn't call a $241 margin "slim". Granted, we don't know the backend costs, and I'd wager that it is more expensive for Nokia to license WP than it is for Apple to support iOS, which hasn't changed a much since it was introduced. But there is no doubt Apple is milking consumers for all they're worth, and their fans respond with "thank you sir may I have another?" Personally, I don't understand that mentality. But if you're happy, good for you.

I guess what folks are forgetting is that Apple isn't funneling all that margin on hardware into software development, hence the huge wad of cash they have on hand. Some of this, of course, is taken up by assembly costs, shipping from China to wherever, etc but that something that Nokia also has to pay and while Nokia doesn't have to foot the full bill of developing the OS the license is probably not free and goes at least partly to cover that (if MS is hopping to turn a profit on it).
Did anyone overpay, well for an Apple product you always overpay. But if its what you want then you have to pay for it what the person selling it is willing to charge. If people didn't buy iPhones at a $649 retail price Apple would not be able to charge it. They would have to lower price, therefore lower margin, therefore have less to bank.
Then we have the fact that most people who buy iPhones in America don't pay full price unless they simply gotta gotta have the newest every year. They buy not from Apple but from AT&T, Sprint, Verizon who don't pay retail either, and you pay whatever their discounted price from Apple is plus profit for the carrier over the duration of the contract (this is what makes the iPhone 3gs a very expensive $.99 phone). Thats how people who have no jobs can be on daytime judge shows suing a former boy/girlfriend for breaking their iPhone.
Oh and lets not get into taxes. I recall reading recently that using creative loopholes Aople pays some minute percentage in tax. Way lower a percent than an average middle class American does. Obviously needing the breaks as indicated by their huge bank account. That, I think, is way more interesting than how much they charge over what the components cost.

Why can't people keep emotion and economics separate?
How much does it 'cost' to produce a bottle of sugar water (Coke), and how much do you pay for it?
Probably the dinner your mom cooks at home is far better while being practically free, yet you go to a premium restaurant and pay a lot more.
Accept the fact that Apple's smart enough to have got the economics right. Stop envying them.

A bottle of pop has a lot of marketing and transportation costs involved. And Coca-Cola is not sitting on $100 Billion cash.
Home cooking is not free, nor should you consider your mom's time to cook as free. Retaurants, believe it or not, are a cut-throat industry with slim margins and fickle customers. Ask anybody who has owned one.
It's not about envy, I'm perfectly happy with my Android phone and its capabilities. It's about consumers not only willingly paying more for a product than it's worth, but then bragging about how much money the company is making. That mentality is amusing and puzzling to me.

lets not forget, that nokia still sells millions of crap phones around the world, for im sure more then the cost of manufacturing 10 fold. they are making plenty of money where they can, & are offering this phone at a reduced price to compete w/ an already dominate proven phone thats crushing their attempts at smartphones. i remember yrs ago wanting what i thought was an incredible nokia phone, that wasnt offered in the USA & would have cost me over $700. and looking back, if i had got that phone, i was paying for gimmicks & the nokia name not what the phone was worth. extra costs are needed to support future development, new products, & evolution of devices & software. im not a fan boy of any manufacture, but business is business.

I don't know why everyone is making such a big deal about what everyone else pays for their stuff (phone, car, ect.) If I am happy with the price I pay, and you are happy with the price you pay, then everyone should be happy. Besides most people but their phones on contact for $200 and turn around and sell their iPhones for $500 and their Androids for $150.

Not for nothing, but the Lumia is a very nice phone, I have seen a few people with them and messed with a few in the stores.
Very nice, I just think AT&T is garbage thats all.
Nokia was here a long time before Apple started putting out cell phones.

It is amusing that people are so up in arms about this. All rational companies want to produce goods for the lowest possible cost, and sell them for the highest possible price. Apple is just inordinately good at it, as Cook has been able to negotiate/strongarm low component prices, with as an end result a product that people are willing to pay a premium to get. Any company would love to be in that position.
Nokia will not achieve those margins unless and until they can make a phone with a similar level of demand, which is not likely. It is far more likely that some circumstance (or Apple misstep) will curtail the extraordinary demand for iPhones, and Apple's margins will shrink. If they get complacent or disdainful of their developers -- like they did with the Mac -- it will happen. The longer they stay paranoid, the longer they can stave it off.

I'm curious how they found out some of the component pricing. For instance, we already know the A5 chip is one of largest in the industry and presumably one of most expensive. How is that cheaper than Nokia 900's very outdated S2 Snapdragon chip?

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[sarcasm] These profits are obscene, Obama should go after the Apple fatcats just has he has championed the common mans cause against Wall Street, Big Pharma, and Big Oil. [/sarcasm]