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"Let me begin by suggesting that you donât put a lot of credence in these third-party reports that you see. Itâs always amazing to me the cost categories and the components that never seem to make it into the reports," chief financial officer Peter Oppenheimer said in response to a question about the cost structure of iPhone 4 in relation to gross margins during the Q3 2010 conference call.
While iSuppli wasn't named specifically, the company is both unique and infamous for making headlines after every Apple product release by announcing a teardown cost estimate, sometimes publishing its guesses well before the product is even available to take apart.
In January 2007, iSuppli published a preliminary report stating that the original 8GB iPhone cost just $280.83 in parts, six months before the phone was even available. After the phone became available, the group released a new estimate saying it cost just $265.83.
While Apple insists that both the iPad and iPhone 4 have a significantly higher cost structure than its previous products, iSuppli recently claimed that iPhone 4 cost just $187.51 in parts (compared to an estimated $179 for the iPhone 3GS) and that the $499 iPad uses only $260 in components.
The iSupply Bill of Materials reports are widely published as fact, and generate lots of interest because they nearly always suggest massive profit margins while providing very little contextual information about how the cost estimates compare to competing vendors' products.
The parts estimates factor in some patent royalty costs and include estimated software development expenses, but do not consider other business costs related to creating, shipping, supporting and marketing the products, resulting in a sensational figure that offers very little real information about anything from profit margins to end-user value.
TechCrunch noted in its coverage of a recent report that "iSuppli is well-known for low-balling these numbers in an effort to convince manufacturers to contact them in order to connect with their preferred suppliers, so grains of salt must be taken."