5 ms·

The $1249 iPhone XS Max is made out of only $443 worth of parts

19 points by SREinSF 8y ago

gen3 8y ago
Honestly, after learning about the margins on physical electronics, this seems pretty standard.
zaroth 8y ago
Obviously I understand the purpose of a COGS analysis to calculate gross margin, but an equally valid way to look at things is that for a mere $1249 you get to use a device that cost billions in R&D in order to develop the technical capability in order to produce it. How much would it cost to produce exactly one iPhone XS Max? But through the magic of economy of scale, I get to pay a mere $1,249 and appreciate the full benefit. Arguably even the benefits of having the device increase with scale, due to network effects. The same thought process applied to that 60” OLED TV or the latest Android phone. It’s just worth stepping back and appreciating the incredible things we get to play with for such a relatively small cost just because a billion other people are also stepping up to buy one too.
- anoncoward111 8y ago
  This analysis is partially correct but opens itself up to abuse. I can create some piece of work, for example a really intricate crayon drawing that took me 1,000 hours to produce. If I value my labor at $100 an hour (a number I arbitrarily chose), you now have the chance to buy something that cost 1,000,000 usd to produce. TLDR apple salaries are not a sufficient way to value the iPhone, since it's possible that Apple will some day just produce an expensive pile of shit. A device should only be valued based on what someone will pay for it, and what value it could be expected to produce.
  - zaroth 8y ago
    Art is a bit of a special case though isn’t it, embodying precisely the opposite of “economy of scale”?
  - perilunar 8y ago
    I hope your art is better than your maths! And 1000 hours is a very slow drawing, regardless of how intricate it is. Now if you had spend a few hundred hours tops, then at $100 per hour you are looking at $30k, which is not unusual for an well known artist.
    - anoncoward111 8y ago
      0s confuse me :) Apple literally spends billions on R&D but it doesn't mean every dollar spent was necessary for the creation of your phone. For example I have a $125 phone that I consider to be a technological beast. It delivers impossibly high amounts of value in my life. And I'm sure it cost less for LG to build, too. I'll gladly pay those salaries compared to Apple.
squarefoot 8y ago
It is normal to sell at 3x the cost of parts. That $443 is a bit surprising though, I would have guessed a lot less.
- jaclaz 8y ago
  >It is normal to sell at 3x the cost of parts. No, it isn't "normal" AFAICT[1], and anyway the estimated $443 are for parts + labour. [1] if it was, and if the market was ready for that, there would be much more companies with the net results of Apple, whether it is good components, R&D (and the implied added value), brand or whatever else, the good Apple guys are very good at selling at higher prices than the competition.
olliej 8y ago
The problem I have with things like this is that they seem pretty comical in assigning development costs to the goods. If the “cost” of a device is only x% of the sale price then the company should be making profits in the order of (100-x)%. But of course this isn’t true, because for most products that have “high margins” (by these measures) there are significant costs involved in producing it in the first place. @anoncoward111 gave as an example an artistic crayon, but if you imagine it taking a few weeks for each artistic crayon, then for a perfectly reasonable annual income the cost of that crayon is easily a few thousand. Alternatively look at any of the expensive paintings and ask yourself what the raw materials cost of it is.
forkLding 8y ago
If they had time, they should probably use absorption costing methods to better estimate the cost of the product as it factors in overhead costs. https://www.myaccountingcourse.com/accounting-dictionary/absorption-costing https://www.myaccountingcourse.com/accounting-dictionary/abs...
ddingus 8y ago
The BOM is only part of the value in a product. Apple, notably, recognizes and is consistent in asking for all the value they associate with a product. Good for them. Seriously. I love those, "Why can't someone make X, but cheaper, but also like Apple?" type conversations. To answer it, one rapidly arrives at more than the product and it's immediate scope of software and hardware. There is more than that involved. And it's worth something. Worth what Apple asks? Plenty of people pay. I have not, only buying a 2012 MBP. Great machine, love it, and I love it for a lot of reasons not associated with all the other Apple stuff. Because of that, I consider the machine pricey for what I got, but that's me, not Apple. One other thing about all of this centers on just who Apple is selling to: Often, they are selling to people willing to pay for value, not just product specs, or fairly narrow scope functionality. Android, for example, offers a TON of functionality compared to an iPhone. But, that value proposition is well distributed and lightly controlled. It's hard to get margin for that, particularly when so many entities are involved, all seeking something for whatever value they provide, from whomever sees it as worthy. ADS lubricate that whole system, and I would argue for the good. I like Android a lot, have my issues with information and how it's used, but overall, I'm not burdened so much that the value is in the red. Apple does not do that, and instead offers a more structured, curated environment. Again, to many people, that is worth a lot of money. Information sensitive? Worth even more money! Just a couple examples that speak to how non-inclusive pieces like this are. BOM compare isn't even close to the story, and it won't ever explain the margins, nor why people do what they do either. Love Apple, hate Apple. It's all good. I kind of hate Apple more than I love them, but again that's me! I totally recognize their value play, and commend them for it.

19 points by SREinSF 8y ago

gen3 8y ago

Honestly, after learning about the margins on physical electronics, this seems pretty standard.

Obviously I understand the purpose of a COGS analysis to calculate gross margin, but an equally valid way to look at things is that for a mere $1249 you get to use a device that cost billions in R&D in order to develop the technical capability in order to produce it. How much would it cost to produce exactly one iPhone XS Max? But through the magic of economy of scale, I get to pay a mere $1,249 and appreciate the full benefit. Arguably even the benefits of having the device increase with scale, due to network effects. The same thought process applied to that 60” OLED TV or the latest Android phone. It’s just worth stepping back and appreciating the incredible things we get to play with for such a relatively small cost just because a billion other people are also stepping up to buy one too.

anoncoward111 8y ago
This analysis is partially correct but opens itself up to abuse. I can create some piece of work, for example a really intricate crayon drawing that took me 1,000 hours to produce. If I value my labor at $100 an hour (a number I arbitrarily chose), you now have the chance to buy something that cost 1,000,000 usd to produce. TLDR apple salaries are not a sufficient way to value the iPhone, since it's possible that Apple will some day just produce an expensive pile of shit. A device should only be valued based on what someone will pay for it, and what value it could be expected to produce.
- zaroth 8y ago
  Art is a bit of a special case though isn’t it, embodying precisely the opposite of “economy of scale”?
- perilunar 8y ago
  I hope your art is better than your maths! And 1000 hours is a very slow drawing, regardless of how intricate it is. Now if you had spend a few hundred hours tops, then at $100 per hour you are looking at $30k, which is not unusual for an well known artist.
  - anoncoward111 8y ago
    0s confuse me :) Apple literally spends billions on R&D but it doesn't mean every dollar spent was necessary for the creation of your phone. For example I have a $125 phone that I consider to be a technological beast. It delivers impossibly high amounts of value in my life. And I'm sure it cost less for LG to build, too. I'll gladly pay those salaries compared to Apple.

squarefoot 8y ago

It is normal to sell at 3x the cost of parts. That $443 is a bit surprising though, I would have guessed a lot less.

jaclaz 8y ago
>It is normal to sell at 3x the cost of parts. No, it isn't "normal" AFAICT[1], and anyway the estimated $443 are for parts + labour. [1] if it was, and if the market was ready for that, there would be much more companies with the net results of Apple, whether it is good components, R&D (and the implied added value), brand or whatever else, the good Apple guys are very good at selling at higher prices than the competition.

olliej 8y ago

The problem I have with things like this is that they seem pretty comical in assigning development costs to the goods. If the “cost” of a device is only x% of the sale price then the company should be making profits in the order of (100-x)%. But of course this isn’t true, because for most products that have “high margins” (by these measures) there are significant costs involved in producing it in the first place. @anoncoward111 gave as an example an artistic crayon, but if you imagine it taking a few weeks for each artistic crayon, then for a perfectly reasonable annual income the cost of that crayon is easily a few thousand. Alternatively look at any of the expensive paintings and ask yourself what the raw materials cost of it is.

forkLding 8y ago

If they had time, they should probably use absorption costing methods to better estimate the cost of the product as it factors in overhead costs. https://www.myaccountingcourse.com/accounting-dictionary/absorption-costing https://www.myaccountingcourse.com/accounting-dictionary/abs...

ddingus 8y ago

The BOM is only part of the value in a product. Apple, notably, recognizes and is consistent in asking for all the value they associate with a product. Good for them. Seriously. I love those, "Why can't someone make X, but cheaper, but also like Apple?" type conversations. To answer it, one rapidly arrives at more than the product and it's immediate scope of software and hardware. There is more than that involved. And it's worth something. Worth what Apple asks? Plenty of people pay. I have not, only buying a 2012 MBP. Great machine, love it, and I love it for a lot of reasons not associated with all the other Apple stuff. Because of that, I consider the machine pricey for what I got, but that's me, not Apple. One other thing about all of this centers on just who Apple is selling to: Often, they are selling to people willing to pay for value, not just product specs, or fairly narrow scope functionality. Android, for example, offers a TON of functionality compared to an iPhone. But, that value proposition is well distributed and lightly controlled. It's hard to get margin for that, particularly when so many entities are involved, all seeking something for whatever value they provide, from whomever sees it as worthy. ADS lubricate that whole system, and I would argue for the good. I like Android a lot, have my issues with information and how it's used, but overall, I'm not burdened so much that the value is in the red. Apple does not do that, and instead offers a more structured, curated environment. Again, to many people, that is worth a lot of money. Information sensitive? Worth even more money! Just a couple examples that speak to how non-inclusive pieces like this are. BOM compare isn't even close to the story, and it won't ever explain the margins, nor why people do what they do either. Love Apple, hate Apple. It's all good. I kind of hate Apple more than I love them, but again that's me! I totally recognize their value play, and commend them for it.