ISuppli: $500 iPhone will cost $246 to make

ISuppli Corp has concluded-without performing a physical teardown-that Apple Inc.’s iPhone can generate 50 percent gross margins, based on a preliminary estimate of the device’s bill of materials (BoM).
The market upshot? Such a large margin ensures healthy profits per device for Apple and Cingular Wireless, which will launch the device in June, as well as providing room for future price cuts, should Apple or Cingular decide to use descending prices to broaden the base of potential customers, according to iSuppli.
ISuppli said that price cuts may become important to Apple, as some 835 different models of music phones are expected to launch worldwide this year. Fourteen models with features close to the iPhone already are shipping.
ISuppli concluded that the iPhone 4 GB model will cost about $246 to make and the 8 GB model will cost about $281. Of those costs, NAND Flash memory represents the largest individual cost ($35 and $70 for the two models, respectively), followed closely by the 3.5 inch touch screen display, which is estimated to cost $33.50 for both models.
Apple said its 4 GB model will sell for $500 when it launches in June, and its 8 GB model will cost $600.
ISuppli forecasts that more than 600 million music-enabled phones will ship this year, up 40 percent over last year. Many analysts have predicted handset shipments will exceed one billion this year, thus music-enabled devices would represent about 60 percent of the market.
Apple’s stated intention is to capture one percent of those sales, which would amount to about six million units.
ISuppli analyst Tina Teng said that major OEMs will likely develop and launch products in direct response to the iPhone.
ISuppli said it based its iPhone teardown findings on several factors: the capacity and features of the device, information on materials from Apple, “company sources” and third-party publications. iSuppli also leveraged knowledge from its teardown analysis service, which has dissected iPods, other Apple products and other devices such as music-enabled mobile phones. The analysis firm also used its Mobile Handset Cost Model and Design Forecast Tool to produce its estimates of the iPhone’s parts and manufacturing.