Asymco analyst Horace Dediu published an interesting report this morning that attempts to figure out what Apple pays to manufacture each iPhone. Over the last 5 years, the handset has quickly become Apple’s largest money-maker.

Dediu uses a number of resources, including manufacturing information that has recently come to light thanks to ABC’s “A Trip to the iFactory” documentary, to determine what Apple spends building each iPhone, from parts to shipping…

For starters, Horace says that Apple’s average revenue per handset is \$650. So if the company’s [reported] profit margin on the iPhone is 55%, that means that its COGS (Cost of Goods Sold) is around \$293 per phone. But where does that money go?

Well around \$200 of it goes to BOM, or bill of materials. That’s how much Apple pays for all of the iPhone’s parts like the display, the cameras, the hard drives, etc. That leaves roughly \$93 left to cover transportation/warehouse costs, manufacturing, and warranty (the cost of a returned iPhone) expenses.

Of that \$93, the analyst believes that Apple spends anywhere between \$12.50 and \$30 on manufacturing. He determines this by using some of the details recently leaked in ABC’s Foxconn report:

• There are 141 steps involved in building each iPhone, which require about 24 hours to complete
• Of that 24 hours, 6 to 8 hours is spent installing and testing software, leaving about 17 hours for actual assembly.
• Given that factory workers earn about \$1.78/hr, 17 hours would equal \$30 in labor costs

But there’s a good chance that each iPhone spends some of that 17 hours in automated operations, or sitting idle, waiting for the next process to begin. So Horace does the math, estimating that if each of the 141 steps takes 3 minutes, then human hands will only touch the iPhone for about 7 hours. Once again, at \$1.78 per hour, that equals about \$12 in labor — thus the \$12.50 – \$30 estimate.

Of course, the above cost structure is just an estimate, and it doesn’t include Apple’s costs for research and development, designers, engineers, and what it pays its marketing team. But it still provides an interesting look into Apple’s iPhone expenses.

• Greg Hao

Er, R&D, design, marketing isn’t figured into COGS….

• Hence ‘estimate’…

• Greg Hao

Right, but those numbers aren’t reconciled under the COGS section in a financial statement. They affect the overall margin of the business/product.

• EXACTLY. But the post above says it’s an “estimate” meaning if it had been an accurate report it would’ve added those costs? Which is what Greg Hao has pointed out rightly. COGS does not include those kinda costs. It’s standard basic accounting policies used worldwide.

• Aric Bolf

If the revenue per phone is \$650, subtracting \$200 BOM leaves \$450. \$93 – \$30 = \$63. \$450 – \$63 = \$387 before labor costs. \$387 / 17 = \$22.76 per hour that COULD be paid to a worker if apple was to make no profit. Of course nobody works for zero profit, but that does show IMO that a person in the USA could be paid \$15 an hour doing this job. \$15 * 17 hours = \$255 labor. \$387 – \$255 = \$132 profit.

Based on your numbers in this story, the only reason it’s made in China is so the rich people can make MORE profit. \$357 China made vs. \$132 USA made.

• Greed is the final answer

• i bet you would have channeled the production to USA and be charitable about the profits you make. i bet that your company’s shareholders, oh shareholder is only yourself and you only report to yourself. and i bet you have more than 10 items in your home that are made in China.

• Since when it’s wrong to make a profit??? Oh! I remember now; Since that “piece of shit” gets elected into the White House. You Idiots are falling into this class warfare trap created by Obama and its administration. Wake up before it is too late!

• Anonymous

Update the post with a:

Q: iPhone total price?
A: \$XXX

People will appreciate that, thanks.

• Anonymous

This is so stupid. Dont you think the factory itself doesnt make provid on its labour?
And there are no costs involved in running the factories?..

Lame calculation

• Like he said, it’s a COGS calculation. Factory costs?? Learn a little about accounting methods.

• Please. Shut up with the abbreviations. It doesn’t make this post look any clever or sophisticated.

• What? U can’t handle ONE abbreviation with a reference a few lines away above??? Jesus just what is happening to people’s brains these days.