Now I'm a little embarrassed to own an iPhone

I was just reading this analysis of costs and profits of the iPhone, and it's rather dismaying. It's largely about how the costs are distributed: the iPhone is assembled in China, and contributes to our trade imbalance, but it's not because China has a technological edge — all the components are made in Japan, Korea, Germany, and the US, and just shipped to China for the final assembly by the cheap labor there.

The total component cost of an iPhone in 2009 was $172.46. Workers in China assemble the iPhone, but because their wages are low the assembly cost per phone (labeled manufacturing costs in the table below) is quite small, only $6.50 a phone. The total production cost per phone is $178.96.

Apple has a 64% profit margin on the iPhone! That's not a surprise, though — I'm used to tech companies charging a premium price for the fancy toys, and Apple has never had a reputation as a budget brand. This is what surprised me:

For the sake of discussion, they assumed that assembly line wages in the U.S. are ten times higher than in China. Given that Chinese production workers earn roughly $1 an hour, that is not an unreasonable assumption. The higher wages would mean that the total assembly cost per phone would rise to $65 and the total manufacturing cost would approach $238. If Apple continued to sell the iPhone for $500, the company would still earn a very respectable 50% profit margin.

There is admittedly a very large difference between 64% and 50%, and I can understand why a company would balk at cutting profits by 14%, and it would be an irrational business decision to shift assembly to the US for reasons of national altruism. But still…50% seems obscene enough.

I hope Apple is at least paying respectable taxes on that profit. The article doesn't say; I don't have expectations that they are.

(Also on FtB)


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