How Apple could make a truly cheap iPhone 5C

A cheaper plastic case won't make a dramatic price reduction, but these other changes might do the trick for a $125 iPhone

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Here are some changes that might get Apple closer, without making the iPhone 5C unsatisfying to use -- we all saw a few years ago how too-cheap netbooks fell quickly out of favor even with budget-conscious buyers because they were, well, cheaply made and poor performers.

  • Cheapen the case, buttons, and other electromechanical components, using cellphone-quality components. That could save at least $20 in materials.
  • Cheapen the touchscreen's components, using screens that are less bright, less color-accurate, and less responsive, to save $15 off of the iPhone 4's costs. That may mean forsaking the Retina display, but given that high-density displays are now used by Google, Samsung, and others, I bet their costs are now only slightly more than the older screens. The quality edge may be worth a $5 increase in the price to keep it.
  • Cheapen the cameras, and drop the LED and optical-enhancement circuitry, to save about $8.
  • Use country-specific cellular components, rather than the pricier multiband ones now used to cover multiple carrier networks. The cellular world is very fragmented, so making a single chip set to handle all the frequencies and technology variants is out of reach, which is why there are different iPhone and Android models for different carriers and regions. But those are still too pricey for a cheap iPhone, so Apple would need to use increasingly specific circuitry, with more country-specific models and no support for lower-tier carriers. This could drop the cost in half, saving $12 or so.
  • Drop Siri, to allow use of a less powerful processor; also ditch the high-end 3D graphics coprocessor. These compromises could shave off $3 or $4.

Here are the compromises I suspect Apple would not make in the name of cost, and why:

  • Rather than lowering the flash storage to 4GB or 8GB, the iPhone 5C would retain 16GB, so there's enough capacity for music, video, documents, and apps -- all the stuff that Apple sells through iTunes and iCloud, and one of the key advantages of an iPhone. Likewise, it would pay the extra 50 cents for having 1GB of RAM, which iOS really benefits from -- iOS 6 and, from all indications, iOS 7 hit the limits of the iPhone 4's 512MB.
  • If sold in North America, Japan, Korea, Taiwan, and Europe, the iPhone 5C would support LTE networks, even thought that adds $10 to the materials cost. The "rich nation" version would need to cost $25 more to support that.

Here are the major costs compared side by side:

ComponentiPhone 4iPhone 5iPhone 5C (proposed)
 Case and electromechanical$33 $33  $13
 Processor (A5 series) $14 $17 $11
 RAM (1GB) $9.50 $10 $10
 Flash storage (16GB) $10 $10 $10
 Cellular chip set and radio $24 $34 $12 ($17 for LTE)
 Wi-Fi chip set and radio $5 $5 $5
 Touchscreen $34 $44 $20 ($25 for Retina)
 Camera $15 $18 $7
 Battery/power management $13 $13 $8
 Manufacturing $25$35 $15

My proposed cost savings would save $60 over the cost of an iPhone 4, bringing the iPhone 5C's component cost to about $110 -- to resemble an iPhone 3G S. A simpler phone should be accordingly simpler to manufacture -- and Apple would need to redesign the iPhone 5C for straightforward, highly automated assembly -- to get the cost down to $15, saving another $10. That brings the total manufacturing cost to $125.

You then have an iPhone 5C that still costs more than an Asha 501 but would feel like a real smartphone. That iPhone 5C's $125 device cost would leave little profit for Apple or its carriers, even factoring in shared profits from cellular plans and Apple's cut of apps and iTunes revenue generated by users -- there are still distribution, sales, marketing, and overhead costs to factor in, never mind profits. But it is possible to get an iPhone 5C that would retail for $125.

The question then becomes whether Apple would be robbing rich Peter to pay poor Paul, hurting its premium brand and perhaps the sales that make it so much profit. But that's an issue for Apple's financial strategists.

This article, "How Apple could make a truly cheap iPhone 5C," was originally published at Read more of Galen Gruman's Mobile Edge blog and follow the latest developments in mobile technology at Follow Galen's mobile musings on Twitter at MobileGalen. For the latest business technology news, follow on Twitter.

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