More lessons from the iPhone story

Apple has undoubtedly been the most enigmatic company of its times, a touchstone for technical excellence and commercial nous. The Economist has an excellent graphic on the iPhone 4, which shows who makes what inside the iPhone, and how much the various bits cost.



There are three observations from the graphic. One, Apple has ceased to be a manufacturer. It does not make iPhone itself - it neither manufactures the components nor assembles them into a finished product. The components come from a variety of suppliers and the assembly is done by Foxconn, a Taiwanese firm, at its plant in Shenzhen, China. This leaves Apple free to concentrate on "designing elegant, easy-to-use combinations of hardware, software and services".

Second, Samsung, which is Apple's closest competitor in the smartphones market, is also its largest supplier, accounting for 26% of the component cost of an iPhone. As The Economist writes, Samsung provides some of iPhone's most important components - the flash memory that holds the phone's apps, music and operating software; the working memory, or DRAM; and the applications processor that makes the whole thing work. This gives an insight into Samsung's own business model - "acting as a supplier of components for others gives it the scale to produce its own products more cheaply".

Third, the last two years have seen a dramatic shake-up in the global smartphones market, comparable to anything elsewhere in history. Apple's increase in market share from 13% to 19.1% pales in comparison to Samsung's spectacular rise from just 5.6% to 16.2% and Nokia's precipituous decline from 37.3% to 15.7%.

Update 1 (23/1/2012)

Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.

Hal Varian