Monday, July 12, 2010

Breaking Down an iPhone

Labor strikes and unrest have been widely reported in Chinese manufacturing centers over the last several weeks. The strikes and protests are a function of a number - - $6.54. If you have a new iPhone - - the $6.54 is inside your phone. The iPhone, designed by Apple engineers in the United States, is manufactured in China with parts from around the world. Apple won't reveal its suppliers, so experts at iSuppli sometimes have to guess a part's origins. Based on a $600 iPhone 4 - - this is the best estimate of the big picture (Note - - doesn't include price for duct tape):
  • Materials - - $187.51
  • Miscellaneous - - $45.95
  • Assembly - - $6.54
  • Profit - - $360
A sample of the material costs per phone - -
  • Samsung (Flash memory chip) - - $27.00
  • Intel (Radio frequency memory) - - $2.70
  • Texas Instruments (Touch-screen control) -- $1.23
  • AKM (Compass) - - $0.70
  • Dialog (Power management) - - $2.03
Two observations are important - - globalization is about swimming in two directions. The first is engineering and design - - the goal is to swim upstream faster than the competition. You are in a constant struggle for the high value - - knowledge based part of the market. The goal is to get away from commoditization. The second direction is downstream in the context of manufacturing and assembly - - you are swimming away from the $6.54 per phone - - you are trying to find the next China, the next Korea, the next Philippines. The search is for the next low-cost production center. You are also struggling with lowering your $187.51 per phone - - which also involves swimming in two directions at the same time.

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