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

A report on abusive working conditions at Chinese manufacturer Pegatron Systems, which makes products for Apple and other tech firms, may have outed the so-called iPhone 5C, the long-rumored cheap iPhone that supposedly features a plastic case and is supposed to combat the bargain-basement Android smartphones that sell so incredibly well throughout Asia and other poor regions.

A cheap device is not Apple's standard approach for hardware, whether for MP3 players, computers, peripherals, tablets, or smartphones. In addition, Apple's premium strategy means it takes most of the industry profits for both mobile devices and PCs. But many analysts say Apple needs more market share to not get shut out by the very popular Android, so it requires a cheaper device. (The discounted iPhone 4 sold in the United States may look cheap, but that's because it's subsidized by the carriers, a practice that's rare internationally.)

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Regardless of the right business strategy for Apple, what would it take to make a truly cheap iPhone? According to data from IHS iSuppli, today's 16GB iPhone 5 has about $200 of components and the 16GB iPhone 4's cost about $160. (By comparison, a Samsung Galaxy S 4's materials cost about $233.) Labor costs are about $25 to $35, and Apple's overhead -- marketing, product development, sales costs, distribution, and so on -- adds perhaps $50 more. The rest -- about half -- is profit margin. To get to a price close to, say, $100 means dramatically reducing the component cost and cutting margins drastically.

How would Apple do that? Using a plastic case instead of the steel and glass in today's models certainly won't save that kind of money -- today's iPhone case and related components cost about $33, about a third of which covers the buttons, rockers, and related internals. The iPhone 5's screen and touch sensors cost about $44, and the iPhone 4's about $34. The cellular components cost about $34 for the LTE-capable iPhone 5 and $24 for the non-LTE iPhone 4; the Wi-Fi circuitry adds $5 more. The 1GB of RAM on the iPhone 5 is just $10, and the 512MB on the iPhone 4 costs only about 50 cents less; the 16GB of flash memory on both models also costs about $10. The processor costs about $17 for the iPhone 5 and $14 for the iPhone 4. The cameras cost about $18, and the battery and power management components together cost about $13.

Notice how the iPhone 4's costs are not that much lower than the iPhone 5's. That shows how the older tech isn't much cheaper to make. That's one reason making a cheap iPhone is easier said than done -- at least if it's a device you would want to use.

But there are devices that sell for $100 without carrier subsidies, such as Nokia's Asha 501, a very low-end touchscreen smartphone that works only on 3G networks and has a minimal 128MB of RAM, 4GB of flash storage, and a very small screen (3 inches diagonally). It's essentially an old-style cellphone with a modern touchscreen front end, sold in poor countries where labor and overhead costs are also lower. To get to the $100 price, the Asha 501C uses components costing about $60 to $70.

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