Not all product pricing is determined by the cost to produce the product. Not all product pricing is intuitive to consumers. Products are frequently sold at a

Not all product pricing is determined by the cost to produce the product. Not all product pricing is intuitive to consumers. Products are frequently sold at a loss as well (google "loss leader") for various reasons - usually to ease adoption of a platform (Microsoft's Xbox 360 comes to mind, though my memory of it being a loss-leader might be apocryphal). Whether or not you believe it costs more or less to produce a chip than it costs to produce a phone isn't relevant. The price of phones aren't determined solely by the cost to produce phones. There are many more factors involved. Supply chain agreements, labor contracts, marketing, regulatory, tooling, distribution, market factors, etc, etc - those are just some of the things that influence a product's pricing. The factors considered when setting a chip's price shares those same concerns and probably more.