This chart comes from an interesting piece in this week’s Economist on the business of dissecting electronic gizmos to assess their manufacturing costs.
Most smart-phones’ retail prices (before operator subsidies) are around $500-$600. Not all of the difference is profit. There are many other costs, such as research, design, marketing and patent fees, as well as the retailer’s own costs. But the big gap between the cost of building a smart-phone and its price in the shops should widen further as ever more previously discrete components are packed on to a single main microchip. Howard Curtis of UBM TechInsights predicts that as software and mobile services come to represent more of a smart-phone’s overall value, this too will widen the gap between manufacturing costs and selling prices.
What this gap demonstrates is that for smart-phones, like most other electronic devices, most of the value lies not in manufacturing but in all the services and intellectual property it takes to create and market such products. That is something for politicians to ponder: instead of making empty promises about saving ailing manufacturers they might instead consider how best to promote the growth of high-value service industries.
Sobering to think that the Apple tablet will soon be subjected to this kind of analysis.