Price cuts on Apple iPhone likely, analysis finds

The consulting firm on Thursday released an analysis of what the total component budget will likely be for the Apple iPhone. The US$499 iPhone, which comes with 4GB of memory, will likely have a component budget of US$229.85. Assembly costs will raise the total manufacturing price to US$245.83, according to the analysis.

Meanwhile, the US$599 iPhone, sporting 8GB of memory, will have a component budget of US$264.85, with a total manufacturing cost of US$280.83, according to the report.

The large margins make price cuts inevitable.

"They will cut prices later on," said Jagdish Rebello, director and principal analyst with iSuppli. "It is hard to imagine anyone else getting 50 percent margins for long."

Other manufacturers of high-end multimedia phones get about a 20 percent margin. That would put the retail price of an 8GB iPhone at around US$350 without subsidies from the cellular carrier.

The figures do not include research and development costs or advertising costs, Rebello said. Apple tends to favor large ad campaigns. Wall Street analysts once referred to the company as an advertising agency that happens to sell computers. And the company will likely release a campaign with its phones. Still, iSuppli says that the difference between Apple's costs and the stated retail prices will likely still be wide initially.

Apple has released only a few specifications on the device. Currently, for instance, it is not known what processor will be inside the phone, though there are some indications that it will be an ARM processor. So how can iSuppli predict the component budget?

Like other companies, Apple builds its equipment out of components and some software bought and sold in the worldwide parts markets. For instance, iSupply estimates that the cost of the Wi-Fi chip will be US$15.35 because that is what large manufacturers pay for those chips right now. The flash memory for the 8GB phone will likely run about US$70 because, again, that is the current price. The firm has factored in volume discounts Apple might get, but not factored in the decline in component costs as time goes on. Most analyst firms predict that costs for flash and most other computer components will continue to drop during the year.