[Skroob]

Fine. How much does it cost to build the machine that mills the case out of a block of aluminum? How much does it cost to employ the people that design the hardware, that write the software? How much does it cost to market, distribute and sell on a global scale? The cost of an iPhone, or any mass-produced product, is WAY more than the cost of each individual part from NewEgg.

[mdasen]

Apple definitely puts a lot of money into research and development to create the software and manufacturing techniques. This estimate is more about marginal profit. To make it a bit clearer, if Apple sold zero iPhones, the R&D costs you talk about would still be incurred (and in the same amount). If Apple sells a billion iPhones, the R&D costs you talk about would be the same amount.

One could imagine a company that does $1M in R&D, has a price per unit of $650, and a cost per unit of $500. Similarly, a company could do $100M in R&D, have a price of $650, and a cost per unit of $200. At some number of units (and I'm just being lazy here since I don't want to do the math), the second company makes more money.

A statement like this isn't meant to sound like Apple isn't offering customers a good value, but rather that the cost to supply 1 additional iPhone is small compared to the revenue gained by selling 1 additional iPhone - basically, that a lot of Apple's costs are R&D, not component costs. When evaluating a company for investment, it's nice to see that they aren't running thin margins on supplying marginal units and so the more they succeed, the more the R&D costs are spread out.

[JimmaDaRustla]

Apple definitely does not put lots of money into R&D.

http://blogs.wsj.com/tech-europe/2012/05/14/nokia-outspent-a...

Not that it is a BAD thing, or a good thing - the innovations from R&D past pays off years after, but they only spent 2.4 billion. They tried sueing Samsung for more than their total annual R&D costs.

Again, not science here, just an oberservation that they are indeed cheap with R&D.

[Camillo]

I think it's more a case of Nokia wasting money than Apple being cheap. I lost count of all the phone OSs Nokia was developing: Maego, Meemo, multiple versions of Symbian... and in the end they had to throw everything away and license Microsoft's OS to get something competitive. That's hardly a model of good R&D spending.

[JimmaDaRustla]

Agreed to this and all other comments. There can be no criticism of how much a company spends on R&D - spend tens of billions make a profit, you're doing good, but spend a couple billion and make billions in profit, your a genius. Apple is indeed getting the better bang for their buck over their competitors, that's for sure.

Overall, I think R&D costs is really a moot point, although its always nice to see corporations going above and beyond to push the boundaries of technologies, and develop new ones.

[twoodfin]

A lot of that distinction is just accounting. Apple under Jobs believed that the best "R&D" was done by the folks working on real, shipping products. I bet Ive's salary isn't counted as R&D, but surely that's a big part of his job.

[huxley]

Cheap relative to their revenue, $2.4 billion is still a LOT of money.

Bell Labs in 1982 had an annual budget of $1.6 billion which in 2012 dollars comes to about $3.6 billion.

I believe Xerox PARC had a relatively petite budget of $17 million or so in 1979, so incoming dollars are probably a very imprecise measure of R&D quality.

[jlmendezbonini]

The article is not clear as to whether the mentioned spending is only Nokia's handset department. Assuming that's not the case then I don't think it's a fair comparison because Nokia's product portfolio is way bigger than handsets. It's just like comparing Intel's and Apple's R&D spending.

[dalke]

Basically you're asking how much would it cost to make an iPhone from scratch, assuming we start with a hunter/gatherer level civilization. That's a pretty useless value, because that civilization cost is shared by many other things and amortized over a long history.

Prices, therefore, are only meaningful in a relative context, assuming a baseline, which is what this cost estimate is. And that baseline changes, which is why 1GB now is so cheap while 40 years ago it was very, very expensive.

[erikpukinskis]

We built it!

[rrmm]

There's no implication here that Apple is ripping you off. It's just a calculation of the cost of the BoM which gives industry analysts an idea of Apple's bottom line.

[ctdonath]

Indeed. For anyone who complains "Apple is ripping off consumers", I dare say we could dump the pile of parts in front of someone and they would, at best, have a terrible time assembling them - never mind the costs of setting up a supply chain going from raw materials to completed product in a matter of days.

When my wife was starting her MBA, she asked me out of the blue "what do you think of supply chain management?" Having nary a clue what she was talking about, and being a sarcastic sort, I retorted "I think it is evil and should be outlawed." Now, having for some years observed Apple's supply chain development, I realize how critically important it is and wildly overlooked it is by pundits.

To great degree, it is thanks to Apple pouring BILLIONS of dollars into suppliers & supply chain management that they can construct something as mind-blowingly Star Trek-ish as the iPhone for just $167.50 in parts. You're sure not going to wander into a well-stocked Radio Shack or Fry's and get the same parts for that price.

[ImprovedSilence]

>>"How much does it cost to build the machine that mills the case out of a block of aluminum?"

That costs Apple nothing, it costs the manufacture a set dollar amount, which it then recoups and then some by selling cases to apple for $x.xx. So technically, the cost for building the machine to mill aluminum is already accounted for in the bill of materials.

[saturdaysaint]

Do you have specific knowledge of Apple and Foxconn's relationship? Tooling costs are routinely passed from suppliers to finished goods makers.

[goatforce5]

My understanding is if Apple discovers the machinery to make their cases (or a part of their widget or whatever they want) doesn't exist, they'll pull out their checkbooks to make sure the machinery and factories get built.

E.g. http://www.core77.com/blog/materials/apple_continues_pushing...