The Samsung Galaxy S IV may be all set to smash all previous sales record, but analysts have highlighted a significant factor which most seem to have missed out – the S IV costs much more to manufacture than the Apple iPhone 5.
Reports from IHS iSuppli indicate that the Samsung Galaxy S IV is much more expensive to manufacture in comparison to the iPhone, which means better margins for Apple and eventually more funds being allocated to marketing, innovation and more importantly, price competition. The reports published by iSuppli indicate that the lowest-end 16 GB iPhone 5 costs $196 to manufacture. The 32 GB version’s cost is estimated at $217 and the 64 GB model runs up a total of $238 per phone. Comparing these estimates with the numbers revealed in a tear down of the S IV, we see that the 16 GB version i.e. the high speed packet access version (a 4G mobile standard) is estimated at $244 i.e. $236 for the materials and $8.50 for manufacturing costs. This shows a $48 divide between similarly situated models by both companies, in favour of Apple.
Although HIS admits that these costs aren’t definite and are likely to exclude advertising, promotion and in-store costs. However, it has been established that the S IV costs Samsung around $25-30 more than the S III did. The total cost per phone for the highest end model of the S III was calculated to be $213. Vincent Leung, senior analyst for cost benchmarking at IHS asserted that there aren’t significant differences between the underlying hardware of the S III and the S IV. However, component updates on the S IV, the priciest of which is the Super AMOLED HD display, have led to significantly higher material costs. The inclusion of a full HD display, a slightly beefed up processor and a plethora of new sensors set a new benchmark for cramming an eye-popping number of features in such a small area, but also resulted in lower margins for the Korean manufacturer.
If Apple can keep its volumes near Samsung in the long run, it is clear that it will definitely pull ahead in terms of profits from the smart phone segment. However, Samsung can afford to go with slightly lower margins as it has greater market reach and can subsequently sell many more devices worldwide than Apple. It also has a secondary components business which nets it a tidy sum every quarter.
