IPhone 5 bill of materials estimated at $167.50, $35 more than the iPhone 4S

Apple doesn't strike me as a company to skimp on materials though. My initial assumption would have been that they struck better deals for sourcing materials and parts. They're in a damn good position to do that, so I don't see lower prices for what they need to be too far fetched.

First, I find these pre-teardown estimates and price guestimates to be completely misleading and uninformative. It's foolish to base any opinion on a guess using information that has not been confirmed in an even moderately rigorous manner. The sun doesn't revolve around the Earth despite opinions to the contrary.

Second, by your own admission component costs have declined. Why would you leap to the conclusion that Apple would be skimping purely on the price difference alone? Perhaps they are benefitting from the variety of factors that have caused component costs to be reduced during that time? It makes perfect sense to use today's prices to compare the component costs of the two devices, otherwise it's disingenuous unless all the factors that led to today's reduction in costs for the components in question are accounted for.

These numbers don't 'jive' to me. The iPhone5 has the touch panel built into the screen yet the category for "Touchscreen/Cover Glass" is actually higher on the iPhone 5 implying the glass on the 5 is actually more expensive than both the glass and the touch panel on the 4s ($7.50 vs $6.50). Compare that to the iSuppli BOM which had the iPhone 4s touch panel alone at $14 and the glass doesn't even make it on the major cost driver list.

Apple definitely puts a lot of money into research and development to create the software and manufacturing techniques. This estimate is more about marginal profit. To make it a bit clearer, if Apple sold zero iPhones, the R&D costs you talk about would still be incurred (and in the same amount). If Apple sells a billion iPhones, the R&D costs you talk about would be the same amount.

One could imagine a company that does $1M in R&D, has a price per unit of $650, and a cost per unit of $500. Similarly, a company could do $100M in R&D, have a price of $650, and a cost per unit of $200. At some number of units (and I'm just being lazy here since I don't want to do the math), the second company makes more money.

A statement like this isn't meant to sound like Apple isn't offering customers a good value, but rather that the cost to supply 1 additional iPhone is small compared to the revenue gained by selling 1 additional iPhone - basically, that a lot of Apple's costs are R&D, not component costs. When evaluating a company for investment, it's nice to see that they aren't running thin margins on supplying marginal units and so the more they succeed, the more the R&D costs are spread out.

Basically you're asking how much would it cost to make an iPhone from scratch, assuming we start with a hunter/gatherer level civilization. That's a pretty useless value, because that civilization cost is shared by many other things and amortized over a long history.

Prices, therefore, are only meaningful in a relative context, assuming a baseline, which is what this cost estimate is. And that baseline changes, which is why 1GB now is so cheap while 40 years ago it was very, very expensive.

There's no implication here that Apple is ripping you off. It's just a calculation of the cost of the BoM which gives industry analysts an idea of Apple's bottom line.

>>"How much does it cost to build the machine that mills the case out of a block of aluminum?"

That costs Apple nothing, it costs the manufacture a set dollar amount, which it then recoups and then some by selling cases to apple for $x.xx. So technically, the cost for building the machine to mill aluminum is already accounted for in the bill of materials.

Yep, otherwise all software should cost close to price of the delivery system (cd, bandwidth)

Yes, and marketing, logistics...

Yes: Teardowns from Isuppli often include a BoM:

Lumia 900 + Galaxy S2: http://www.isuppli.com/Teardowns/News/Pages/Nokia-900-Carrie...

That's because the storage provides a measurable benefit to the buyer. "Hey, I can 16GB for a subsidized $200, but if I spend 50% more money, I get 100% more storage".

Every computer manufacturer does this for both RAM and storage. Mostly because the take-rate for memory and storage upgrades are far higher than, say, CPU upgrades which provide less measurable benefit for a significantly higher cost to the OEM/system integrator.

Because the iPhone is probably the most widely used phone on HN.

If these guys can build a phone of this quality and make a big profit, imagine how much money their competition is making by using cheaper materials (and judging by what we know, lower production/r&d costs) while selling for the same prices.