Nokia’s flagship smartphone, the Lumia 900, is almost $200 cheaper than Apple’s iPhone 4S. Despite that, Nokia ends up paying more for Lumia’s components than Apple does for the iPhone.
The specifics: It costs Nokia $209 to acquire components for the Lumia 900, which is currently sold for a retail price of $450. The $649 16GB iPhone 4S on the other hand uses components which cost Apple just $190.
The figures come via a story published in The Wall Street Journal based on analysis done by research firm iSuppli.
While a difference of $19 in the cost of parts might not seem much at first, but when you consider the scale at which Apple works, it works out to an amount in millions of dollars. Leaving out costs other than component acquisition, Apple’s margin works out to double that of Nokia’s on each device sold.
One of the reasons behind the price disparity is, of course, Apple’s strong relationship with component manufacturers and assemblers in Asia. Apple is known to leverage its unique position in the market, as well as its huge cash pile, to extract the lowest possible prices from its suppliers, a competitive advantage Nokia doesn’t enjoy.
In many cases Apple even helps manufacturers financially, helping them set up new factories and secure equipment for the production of new technology. In return, Apple gets not just the cheapest prices, but also exclusive access to new technologies for several years. Matthew Panzarino over at The Next Web sums it up perfectly:
- Pay someone to manufacture crazy new technology for you
- Get new stuff no one has ever seen
- Get huge discounts on that stuff, even when competitors finally have access
But despite the competitive advantage, Nokia possibly could have worked out a cheaper deal with manufacturers if it weren’t for the 4G LTE chip and the larger screen of the Lumia 900. According to the chart embedded below, Nokia pays $21 more than Apple for a single touchscreen and $15 more than Apple for wireless chips used on the device. We’re not saying that Nokia’s costs for these two components would have been the same as Apple had they been equally spec’ed, but it would surely have been a little less.
Nokia’s cash balance is depleting at a faster rate than its incoming revenues, which, considering its low margin devices, is a worrisome sign for its survival. Sadly, the only way Nokia can currently differentiate itself from other smartphone manufacturers in the market is by selling lower priced devices.