Apple Showers Riches On Component Vendors

The iSuppli teardown analysis of the iPhone 4 is out. It estimates the bill of materials (BOM) on a $600 16GB iPhone 4 to be $187.51. That is a fat profit margin of more than 60% for Apple. Samsung, Infineon, Broadcom, and LG Display are the major beneficiaries in the supply chain. This estimate does not include manufacturing, software, and royalty expenses. But according to David Barboza of the New York Times, manufacturing and assembly costs account for just 7% of the overall cost. Let’s take a closer look.

Manufacturing costs have been low as the process is outsourced to low-cost locations such as China. Barboza also reports that manufacturing in China is about to get more expensive due to rising labor costs, the strengthening yuan, and inflation. Most companies, including Dell and HP, outsource their manufacturing and assembly operations to China. However, they do not have the fat profit margins that Apple has to cushion them from such changes. The momentum from iPad and iPhone sales is also a huge plus for Apple.

Apple has sold 3 million iPads in the first 80 days and 1.7 million units of  iPhone 4 in the first three days. Analysts expect this momentum to build to at least 10 million iPhone 4 units, 40 million iPhones (including older versions), and 10 million iPads in 2010. For 2011, the estimates go up to 100 million iPhones and 25 million iPads. That translates into huge revenue not just for Apple but also for its component vendors.

Apple has used the same suppliers for its components in both the iPad and the iPhone 4. LG Display Samsung, Broadcom, TI, STMicro, Numonyx, Elpida, Dialog Semiconductor, and Cirrus Logic are the main suppliers in the iPad, which has a BOM of $250.60 and a retail price of $499. The manufacturing expenses are estimated to be $9 or 3.6% of the BOM.

The display module is the most expensive component in both the iPhone 4 and iPad, costing $28.50 and $65, respectively. LG Display identified as the supplier in iPad. It is also believed to be the supplier in the iPhone 4, but Toshiba Mobile Display (TMD) could also be another source for the part. The display vendor would make about $285 million from iPhone 4 sales and $650 million from iPad sales in 2010.

Samsung provides the next costliest single component, the NAND-type flash memory at $27 or 14.4% of the BOM. It also supplies the 4 gigabits of mobile double data rate (DDR) SDRAM, costing $13.80, or 7.4% of the BOM. Samsung will be manufacturing the A4 applications processor designed by Apple’s PA Semi and costing $10.75 or 5.7% of the BOM. For Samsung, each unit of the iPhone 4 will bring in over $50 and each unit of the iPad over $28. With both the iPad and the iPhone 4 expected to sell 10 million units each in 2010, Samsung’s revenue could increase by over $780 million.

Infineon Technologies AG has the design win for the baseband integrated circuit (IC), costing $11.72, or 6.3% of the BOM. It also provides a $2.33 quad-band GSM/Edge transceiver. On a sale of 10 million units of iPhone 4, Infineon will make about $140 million.  The $2.03 main power management IC is from Dialog Semiconductor. The capacitive touch screen with reinforced glass costs $10.00, or 5.3% of the BOM, and iSuppli believes the source is TPK, Balda, or both.

Broadcom supplies the Wi-Fi Bluetooth controller IC, priced at $7.80 or 4.2 % of the BOM, and the GPS chip costing $1.75. Broadcom provides chips worth $9.45 in the iPad. It stands to gain about $20 million from both devices this year.

STMicroelectronics provides the $2.60 microelectromechanical (MEMS) gyroscope and the accelerometer costing 65 cents. But the small amount of 65 cents when multiplied by 10 million transforms into revenue of $6.5 million.

Texas Instruments has a design win for the touch screen controller IC in the iPhone 4, which costs $1.23 or equates to revenue of $12.3 million. In the iPad, TI provides the touchscreen driver for $1.8. Overall, TI could earn about $20 million from iPhone 4 and iPad sales this year.
NOR flash is supplied by Numonyx (recently acquired by Micron), and DDR mobile DRAM is provided by Elpida Memory Inc., at a combined cost of $2.70. Cirrus Logic provides the $1.15 audio codec and AKM Semiconductor provides the e-compass. Skyworks and Triquint also have design wins for radio frequency parts.

A design win in the iPhone had always been beneficial and prestigious for component vendors. But this time it also signifies millions of dollars in revenue in the span of a few months.