New iPhone Costs $179 to BuildNew iPhone Costs $179 to Build

The least expensive new iPhone 3G S costs $179 to build and $199 to buy with a two-year contract from AT&T Inc. (NYSE: T), which means that the carrier is continuing to subsidize this year's model in anticipation of increased data revenues over the long term.

The bill-of-materials (BOM) cost estimate comes from the analysts at iSuppli. "The entry-level, 16Gbyte version of Apple’s new iPhone 3G S carries a BOM cost of $172.46 and a manufacturing expense of $6.50, for a total of $178.96," according to Andrew Rassweiler, director and principal analyst for teardown services at iSuppli. (See Apple's 3G S Draws Decent Crowds.)

This is actually slightly higher than the $174.33 that the analysts estimate it cost Apple to build the original 8GB 3G iPhone in July 2008. The introductory price for both the old and new 3G phones is $199. iSuppli estimated that AT&T bought each original 3G model from Apple for $499 and thus was heavily subsidizing and continues to heavily subsidize the iconic smartphone. (See Apple Peels Away iPhone Costs and AT&T’s iPhone Pain.)

Table 1: Apple iPhone 3G S Major Components and Cost Drivers

The reason that AT&T would spend so much on the iPhone and new faster 3G networks that will speed up download times for the 3G S is because it anticipates greater data revenues in the future from this upfront spending. (See AT&T Boosts 3G Networks.)

AT&T saw wireless data revenues grow by 38.6 percent, to $3.2 billion, in the first quarter of this year even as its overall revenue declined slightly. Data made up 27.2 percent of AT&T's wireless revenue for the quarter. It's no secret that iPhone users have helped to drive that jump in data revenues for the carrier. (See AT&T: Another Bumper iPhone Quarter.)— Dan Jones, Site Editor, Unstrung