The Wall Street Journal posted an article earlier this week before the iPhone 5 came out entitled “Apple iPhone 5’s higher production costs no threat to its profits”. In the article, it discusses and analyzes Apple’s bill of materials, or BOM, before the iPhone was actually released. In the production of this iPhone, apple totaled up a bill of $199 for the 16GB device. This is up 6% from the previous model and is also in line with the price for the phone when purchasing a 2 year contract with the phone company. The only issue with this pricing is it goes off the market price of the item, not the amount apple might be paying for it. However, this does not change the fact that apple has increased to price of the pieces and electronics that it puts into its phones.
A reason why the BOM for the iPhone is such an analyzed piece of information is because the iPhone itself amounts for 40% of Apple’s gross margin and has remained far ahead of any other manufacturer. Then, it was taken in to account how when new iPhones are released, the old models are sold at a greatly reduced price brand new and are often more attractive to consumers when there are not a lot of changes done to the new iPhone.
Although the physical iPhone itself is what brings in the curious consumers, it is also important that Apple still appeals to the carrier companies that offer their phone. It is important for those companies to have the newest technology and the best technology to be able to offer to their prospective and current customers. They make their profits on the monthly services but without phones such as the iPhone or other close competitors, they would not be able to lock in those contracts.
This article intrigued me not only because it is a day after the launch of the iPhone 5, but I feel like it is something that a lot of people can relate to and are interested in reading since it is a product we have all own, have played with, seen, or at the least heard of… for my generation at least. It is also shocked me to see that the iPhone 5 increased its BOM. It makes me wonder if apple will continue to raise the Bill of Materials with everyone phone model, or if they will have a project manager step in through out the year this year who really focuses on the cost of the materials. It is evident that apple has focused on the production and timeliness, even though some of us were expecting the iPhone 5 and all of its perks last November, but it seems as though they have lost sight of cost… or, have they? Is it maybe that Apple is such a profitable, successful, dominant company in today’s bad economy that instead of focusing on such a minuscule, insignificant cost to them they would rather focus on delivering a product that continue to keep them above the rest by miles? Or was this their plan since last year when they realized that realeasing the iPhone 4s, which was not much different from the 4, was not as profitable as they were expecting it to be? Instead of purchasing the new phone, people p urchased the iPhone 4 for much cheaper because there really was not a huge benefit to paying full price for the 4S. Apple may have figured that instead of focusing on cost, they would focus on production of a product that will guilt consumers into buying over the 4S so that they see the profits in the 5?
I am interested to see what people think Apple’s intentions are in this situation. Was this a strategic plan or do you think the increase in the BOM is going to hurt Apple in the end?