For all that the iPhone 4 is another boost for the fortunes of the all-American company Apple, it is actually mostly made elsewhere. The New York Times on Tuesday reported that the gadget's key components are supplied by firms from overseas and it is assembled in China for the cheap labor costs. Korean firms including Samsung and LG Electronics take up the bulk of what Apple pays for to produce the iPhone.
The analysis was based on data compiled by Market researcher iSuppli in Silicon Valley.
The material cost of a US$600 iPhone is $187.51. Samsung and LG supply components worth a combined $80 for a phone, accounting for 43 percent of the total cost. LG gets $28.5 for the retina displays hailed by Apple CEO Steve Jobs.
Samsung supplies the largest portion of any single firm, including flash-memory chips for $27, applications processors for $10.75, and DRMA memory chips for $13.8. While in cutthroat competition against the iPhone with its own Galaxy S smartphone, Samsung is actually in competition with itself, so its hands are to some extent tied.
When components supplied by other Korean firms are taken into account, the proportion rises to an estimated 50 percent of the total material cost of the iPhone. Samsung SDI supplies batteries costing $5.80; Samsung Electro-Mechanics, multi-layer ceramic condensers; Amotech, chip varistors; and Interflex, flexible printed circuits.
Germany gets $16.08 for parts including receivers supplied through Infineon and Dialog Semiconductor, while the U.S.-made components account for $14.63 including Wi-Fi chips and touch-screen controls by Broadcom, Intel, and Texas Instruments. Japan's AKM get $0.70 for electronic compasses.
Chinese manufacturers including Foxconn, a division of the Hon Hai Group of Taiwan, earn a combined $6.54 from assembling the components, which amounts to a mere 3.5 percent of the material cost of the iPhone. "We've concluded Hon Hai's labor-intensive model is not sustainable," says Isaac Wang at iSuppli Research.
Apple, by contrast, enjoys a whopping profit of $360 per unit, which means a return on sales of 60 percent. A rise in Chinese labor costs will lead to a falling margin for Korean firms which produce goods in China, but that would hardly affect Apple with its huge profits and the power to set prices. Industry insiders say the iPhone 4 flatly shows the so-called "smile-curve," a phenomenon where more profits are created at the two ends of the value chain where brand and marketing power play a role than in the middle of the chain.