Samsung Galaxy S5 More Expensive To Manufacture Than iPhone 5s

Jonathan Cheng and Min-Jeong Lee, The Wall Street Journal:

According to a teardown by market research firm IHS this month, Samsung’s new Galaxy S5 with 32 gigabytes of memory costs $251.52 to manufacture. That sum handily outstrips Apple Inc.’s iPhone 5S, which contains $207.00 worth of components, and is a far cry from ultracheap Android smartphones sold in China and India, some of which can be manufactured for as little as $35.

IHS says its preliminary analysis is based only on hardware and manufacturing costs, and excludes software, licensing and other costs. A Samsung spokesman declined to comment on the teardown.

The high costs come amid the company’s stated goal of simplicity and moderation with the Galaxy S5, a device that company executives characterized as a “back to basics” device rather than one with any flashy but little-used features.

In a February interview previewing the device, Samsung executive vice president Lee Younghee said that the company was steering clear of gimmicky new features in favor of a simple device that would offer “very competitive pricing.”

I don’t give too much credence to information coming out of market research companies so take the manufacturing cost analysis by IHS with a grain of salt. Many components used in the Galaxy S5 come from internal departments at Samsung: the OLED display, internal flash memory and RAM, and others. Although it is quite possible IHS has access to Samsung employees involved in the internal procurement of these components I have my doubts as to its accuracy.

A lot of Apple watchers worry about Samsung, but based on this cost analysis Apple spends US$44 less than Samsung to build the iPhone 5s, which is the company’s top of the line smartphone that goes head to head with Samsung’s Galaxy S5. Multiply $44 by tens of millions and Apple is making a lot more money than Samsung.

Granted the Galaxy S5 is a much bigger phone, but the iPhone is machined out of aluminum, which I assume is more expensive than plastic. Tim Cook is regarded as one of the best in the business when it comes to supply chain management, so I’m not surprised Apple’s costs of manufacturing could be lower than Samsung’s, but I’m surprised Samsung’s costs are not as competitive since the company is significantly more vertically integrated than Apple. One other consideration is that Apple’s iPhone product line is simpler than Samsung’s. I don’t know how many Galaxy S5 varieties there will be worldwide, but I can safely assume there will be more than one. Apple, by making just one iPhone 5s (everything is the same except for three varieties of external coloring) has buying power and uses it to bring down component costs. This is one of the reasons why I don’t think there will be two iPhone 6 display sizes; I think there will be just one and if I had to pick it wouldn’t be 5.5 inches; it’d be 4.5 inches.