Fun Topic: Cellphone Economics Part 2 (aka. WiFi iPad vs. 4G iPad)

So this is a follow-up to Part 1 in which I compared the iPhone 5 to iPod Touch, which was almost 1/2 the price. I got thinking and said, 'hey wait, the iPad comes in in WiFi and WiFi+4G versions', maybe we have a breakdown for that. Luckily, IHS/iSuppli has come through again:

(From http://www.isuppli.com/Teardowns/News/Pages/New-iPad-32-GB-4G-Carries-364-35-Bill-of-Materials.aspx)

So, when looking at the iPad 3, the main difference is the $41.50 modem. (I believe this is a Qualcomm Golbi, but it's not officially called out. For some reason it's about $3 more expensive than the one in the WiFi iPod Touch.) We also have a slightly more expensive Manufacturing cost, about $0.75, most likely from the need to mount and solder on the chip, maybe antenna, etc. The total difference is $42.25.

The simply math is that $42.25 allows Apple to charge $130 more. That's basically 3x or 308% markup. Compare that to the roughly $52 (Camera + 4G modem) that allows Apple to charge $420, that 8x or 807% mark-up when going from iPod Touch 5 to iPhone 5!. (This is one is "approximate" because I have costed it out totally electro-mechanical differences + labour cost, etc., unlike in the iPad 3). 

Clearly, there is a huge mark-up for making an iPod Touch 5 (entertainment device) into a iPhone 5 (cell phone). 

If you think this is the only place where Apple really gauges people, it's not. Another very obvious area is extra memory aka. NAND flash memory. (BTW, note that Apple isn't the only one to do this.)  For iPad 3 WiFi+4G, going from 16GB to 32GB, it's an additional $16.80, but an overall consume cost of $100, or basically 6x or 595% mark-up. Going from 16GB to 64GB it's an additional $50.40, but an overall consume cost of $200, or basically 4x or 397% mark-up. (Note to self, if you're splurging, it's a better deal to go for the larger 64GB. You're paying less mark-up!)

I *think* this is a BIG reason why all iOS devices don't offer external storage via MicroSD slot is because it makes good business sense *not to*. The going rate today I think is about $50 for 64GB MicroSD. So on any Android with MicroSD slot you are only paying like 25% of the price (or $50 instead of $200) to get at least 64GB of (extra) memory (that you can re-use potentially later down the road). 

Andrew Rassweiler of IHS pretty much sums it up here:

“The NAND flash memory is one of the key profit-generating components for Apple in the new iPad line, as it has been in previous iPads and in the iPhone family,” Rassweiler noted. “Apple makes far and away more money in selling consumers NAND flash than NAND flash manufacturers make selling it to Apple. And the more flash in the iPad, the higher the profit margin there is for Apple.”

(http://www.isuppli.com/Teardowns/News/Pages/New-iPad-32-GB-4G-Carries-364-35-Bill-of-Materials.aspx)

So while there may be concerns with security of having external storage, etc, Apple is definitely taking full advantage of the situation.

Hope that helps...

Wayne Pau.

p.s. So what *if* Apple did offer external storage like Android does? 

Once again with Android  (And from this post, it seems *a lot* actually do) , if it supports SDXC, you could actually get even more memory than just 64MB. The specs say that SXDC can actually hold up to 2TB! Imagine a 2TB iPhone? No need for iPod Classic anymore...

However SD card storage comes at a cost. It's harder to manage from a software point of view and it's a potential security threat or attach point. Yet a big part of the real motivation for for Apple is 'possibly' economics.

For the record, HTC One line (everywhere but Asian) doesn't offer SD Card storage either. So it's not just Apple.