Slowly Breaking Down the Cost of a Smartphone

[Mike Temporale]

<div class='os_post_top_link'><a href='http://www.smh.com.au/news/Soapbox/Moores-law-friend-or-foe/2005/04/20/1113854241433.html?oneclick=true' target='_blank'>http://www.smh.com.au/news/Soapbox/Moores-law-friend-or-foe/2005/04/20/1113854241433.html?oneclick=true</a><br /><br /></div>There is an article about Moore's law that is running across various news sites today. Basically it talks about Intel moving into other markets, and if Moore's law will force customers in these new markets into an upgrade cycle like the one we're all familiar with in the PC arena. The really interesting part of the article is the small quote that follows.<br /><br /><i>"The average value of chips selling into digital entertainment devices is far lower than for PCs. According to Gartner statistics quoted by Intel at a conference in Taipei last week, the average basic mobile contains US$25 of silicon and the average smartphone $US75, compared to Intel's potential $250-plus cut of each notebook computer."</i><br /><br />It's my understanding that Windows Mobile costs about $10 per device, and now we know that $75 goes to Intel (or whoever) for silicon. The average smartphone will cost about $500. I would really like to know who gets the other $415? :?

[Mr.Phil]

Well, for one most carriers have a pricing scheme based on their current model lineup and of course market research. You will notice all top models cost about the same, and slowly step down the price ladder as they age and new top models come out (at about the same price) Hence, regardless of manuf cost, the bundled cost of the top line phones will stay about the same, based on what market research thinks is a reasonable price point.

Second thought is that the manuf cost of the phone surely goes well beyond the cost of the O/S and the processor. I'm sure the LCD, ROM, RAM, bluetooth chipset, cases, batteries, R&amp;D, testing, support, etc all contribute significantly to the total cost. Remember, the volume of smartphones being sold is not as huge as other, simpler mobiles. Economies of scale and all that.

[Mike Temporale]

Well, for one most carriers have a pricing scheme based on their current model lineup and of course market research. You will notice all top models cost about the same, and slowly step down the price ladder as they age and new top models come out (at about the same price) Hence, regardless of manuf cost, the bundled cost of the top line phones will stay about the same, based on what market research thinks is a reasonable price point.

Excellent point. I'm sure this plays a large role in the final pricing of a handset.

Second thought is that the manuf cost of the phone surely goes well beyond the cost of the O/S and the processor. I'm sure the LCD, ROM, RAM, bluetooth chipset, cases, batteries, R&amp;D, testing, support, etc all contribute significantly to the total cost. Remember, the volume of smartphones being sold is not as huge as other, simpler mobiles. Economies of scale and all that.

I agree 100%, but how much does that really add to the price of the phone, $100?? I'm just guessing, I have no real idea. But at a even $100, the total cost is still just $185 :? Of course, over time, the costs of manufacturing decrease and profits increase.

[Kris Kumar]

I guess the low manufacturing cost explains how carriers are able to subsidize the price; Smartphone retails for $500, but with service it costs $250 or less.

I am guessing that the carrier agrees to buy huge order of cell phones from the manufacturer, hence getting a really low price.

When will Walmart start selling Smartphones! Then we can really see the price drop. ;-)

[jimfee]

I may have been the benificiary of a scheeme to unload bad firmware stock on the MPX220, but I got a sweatheart deal from BestBuy and only a 1 year contract for the Carrier to recoup cost from an Unlocked phone. I see similar after rebate prices on Amazon.

I think that we are still seeing an attempt to get market penetration at this point weather its from OEMs (Moto,Audiovox) or thier supliers (Intel or ARM in the case of the MPX220).

Everybody sees potential revenue increases from getting into new markets, even if they have to give it away to begin with. Do you realy expect MS to keep taking $10 as their cut? It will be amazing to see what value the market wil set for a smartphone device once it is mainstreemed, we will look back and say.

"In my day you could have gotten the same phone for a nickel!!"

[Mike Temporale]

Do you realy expect MS to keep taking $10 as their cut?

Yes. Last I heard, a Windows Mobile license was about $8 per device. Obviously this is based on x number of devices. It would be volume pricing, so the more units you're estimating the cheaper the price. I'm sure they aren't billing Motorola for each device that hits the streets.

Edit --> Opps, I missed the word KEEP in your reply. ;) I'm sure over time, and with greater volumes the price will fall, but I don't think that's the case anytime soon.