Apple and other tech companies could be forced to raise the price of items like the iPhone 4, according to a new report in The New York Times, if current pressure on Chinese supply chains continues. Chinese factories such as Foxconn face rising salaries, stronger currency and other economic factors as they try to keep their costs under control.
Apple and other tech companies are facing rising costs in China
for their devices, according to a new report in The New York Times. The
combination of higher salaries, stronger Chinese currency and economic factors
such as inflation could potentially drive up the cost of manufacturing the
iPhone 4 and other devices, forcing Chinese factory owners to shift production
to other areas of China.
The
July 5 article paraphrases a manager at Foxconn, whose factory complex
produces a number of Apple devices in addition to products by Dell and
Hewlett-Packard, as suggesting the company would shift workers to cheaper parts
of the country. But even that might not be enough, as rising wage costs
threaten to eat into the relatively tight margins of Foxconn and
other companies.
According to a June teardown by research firm iSuppli, each
iPhone 4 costs Apple an estimated $187.51. That number, however, only
accounts for the cost of the actual hardware; other expenses, including
manufacturing and distribution, would potentially add to the per-unit tally for
the next-generation device.
The cost of the iPhone 4 represents a marked increase from some previous
iterations of the device; the Bill of Materials (BOM) tally for the
iPhone 3GS, by contrast, was $170.80, while the iPhone 3G cost $166.31 in
materials. However, the hardware costs for the original iPhone, released in
2007, reportedly totaled $217.73.
"The BOM of the fourth-generation model closely aligns with those of
previous iPhones," Kevin Keller, a principal analyst for iSuppli, wrote in a
June statement. "With the iPhone maintaining its existing pricing, Apple will
be able to maintain the prodigious margins that have allowed it to build up a
colossal cash reserve."
According to iSuppli, the most expensive part of the iPhone 4 is the LCD
display, at $28.50, followed by the Samsung-supplied NAND flash memory, which
costs approximately $27 for the 16GB version. The 4GB of mobile DDR
(double data rate) SDRAM costs $13.80.
The iPhone 4 retails with a two-year contract for $199 for the 16GB version,
and $299 for the 32GB version. While Apple states that
U.S. purchasers can't secure an iPhone 4 without the two-year AT&T contract,
other countries sell the device unlocked; in the United Kingdom, for example, the 16GB
iPhone 4 costs $755 and the 32GB iPhone 4 costs $907, depending on the
day's currency conversion from British pounds.
While Apple builds a healthy margin for itself, the potential profit is much
more razor-thin for the factories, leading some like Foxconn to also consider
manufacturing many components in-house rather than trying to secure them from
outside sources.
Foxconn already indicated that it would pass along its workers' salary
increases to its customers. In an effort to deal with bad publicity surrounding
an earlier rash of worker suicides, Foxconn announced in early June that
first-line workers and supervisors who pass a three-month evaluation period
will be apparently entitled to a salary of approximately $290 in October,
representing a substantial bump-and potential extra costs for companies such as
Apple and HP. "The time has come for the global food chain to face these
issues," a Foxconn
spokesperson reportedly told the Financial Times at the time.
How that will translate for American consumers, pricewise, remains to be
seen.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.
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