Apple's 3G iPhone Costs About $173 To Build, iSuppli Estimates

The original 8 GB iPhone cost $226 to build. iSuppli attributed the 23% decrease to component price declines.

Apple's second-generation iPhone is significantly less expensive to build than the older model, a preliminary analysis released Tuesday shows.

The latest iPhone, which improves upon the original version by including support for wireless carriers' faster 3G data networks, carries hardware and manufacturing costs of $173, iSuppli said. The dollar amount is an estimate, given that Apple isn't scheduled to release the new iPhone until July 11.

The original 8 GB iPhone cost $226 to build, which is $53 more than the latest smartphone. iSuppli attributed the 23% decrease to component price declines.

iSuppli believes AT&T (NYSE: T), the exclusive wireless carrier for the iPhone in the United States, will pay Apple about $300 per iPhone. In addition, Apple will get the money the carrier charges customers for the iPhone. For the baseline model, that would be $199 with a two-year service contract.

"This means that with subsidies from carriers, Apple will be selling the 8 GB version of the second-generation iPhone to carriers at an effective price of about $499 per unit, the same as the original product," iSuppli analyst Jagdish Rebello said in a statement.

Collecting as much money as possible for hardware is important for Apple, given that the company will no longer get a portion of the carrier's revenue from service subscriptions, iSuppli said. Apple typically prices the iPhone and iPod about 50% more than materials and manufacturing costs. Therefore, the profit margin is expected to be higher for the new iPhone than the older model.

As with all electronics products, the 3G iPhone's material costs are expected to decrease over time as component prices decline. By 2009, the cost of building the device will drop to $149, iSuppli said. If the hardware remained unchanged, the iPhone would cost $126 to build in 2012.

iSuppli said it performed its "virtual teardown" using the insights of its analysis team to develop estimates of iPhone content, suppliers, and costs. ISuppli normally would wait until it could get its hands on the device. "However, due to strong popular demand for information on iPhone costs and pricing, iSuppli has decided to release a preliminary analysis to the public," the firm said.

ISuppli's teardown analysis does not represent the full cost of the device. Elements missing include the cost of software development, shipping and distribution, packaging and miscellaneous accessories included with each phone.