Yesterday I attended the informal iPhone Developers Chat in Mountain View. The subject got around to the new iPhone price which is down from $500 to $200. Supposedly, AT&T is subsidizing the iPhone the same way that they do for other phones. Meanwhile AT&T and Apple have ended their original revenue share agreement.

The real question is how much is this subsidy. Whatever it is, AT&T has already counteracted it by raising the data rate to $30/month. Over the mandatory 2-year contract, the subsidy has been completely paid off. But to the cost of the iPhone, iSuppli put together a theoretical Bill of Materials (BOM) on the initial gen of the iPhone. It is a good starting point, but it must be high for today’s iPhone. For example, the iTouch, which differs from the iPhone in not having any phone, GSM or EDGE capability or, more important to this discussion, a subsidized price from AT&T is currently selling at the Apple store for $299. If the numbers on the iSuppli BOM are close to correct, then the iTouch should be about $30 cheaper to make than the iPhone. Assuming a margin of 50% for the iTouch, which is what iSuppli assumed with the initial iPhone, then the iTouch would cost about $150 to make. My guess is that his value is probably a little high, but assuming it is in the ballpark, then the iPhone costs about $180. Not a great price, but still a 10% margin even without any subsidy from AT&T.

If anyone out there has a better idea on the actual prices, let me know.

Tags: Apple, AT&T, iPhone, iSuppli, iTouch, subsidy

This entry was posted on Tuesday, June 17th, 2008 at 12:02 am and is filed under Business Lessons. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.