True Cost

 Do you ever wonder what the true costs of things are? How much does it really cost to manufacture and assemble something?

How much of what you pay represents the cost of its components and how much is marketing mojo and profit?

Well, you are in luck, at least as far as smart phones go.

The January 21, 2010, Economist revealed the true cost of four smart phones: Palm Pre, iPhone, Toshiba TG01, and Motorola Droid.

Surprisingly (or perhaps not, given today’s hyper-competitive markets), the range of actual cost was tight: $170.07 to $179.11, with the iPhone on the low side and the Droid on the high. iPhone’s current $170 cost illustrates the ongoing drop in the price of electronics. The original iPhone’s cost was $218.

The data was supplied by iSuppli, a firm that makes its living doing “teardowns,”primarily of electronic products, providing reports to competitors on exactly how a product is constructed and analyzing its design. The cost of smart phones was broken down to seven areas: integrated circuits, display/screen, mechanical/electromechanical, camera, battery, and other.

Since most smart phones retail between $500 and $600, there is obviously a nice gross margin. Net margins are smaller as other costs must be taken into account “such as research, design, marketing, patent fees as well as the retailer’s own costs.” Many operators do offer subsidies and discounts but those typically require a service contract and may represent an overpricing of service rather than a true reduction of the phone’s cost.