Why Apple's Faster '3G' iPhone Will Cost The Same $399 (AAPL) - Tech Weblogs

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Good news: Speeding up the iPhone won't break the bank. Research firm iSuppli estimates that the parts to make a phone 3G-capable only cost an extra $17/device. A GPS feature, which some expect Apple to include in the next iPhone, could cost another $3 to $4.

What's an extra $20 do to Apple's costs? Not a whole lot. Last summer, iSuppli estimated that it costs Apple about $266 to build an 8-gig iPhone. At a $399 retail price, that's a $133 gross profit per unit. So a phone that costs $20 more to build would yield a gross profit around $113 per unit.

To be sure, that gross profit per unit could easily go up or down. Apple could add more features, which would cost more. But at the same time, they're probably getting other features for much cheaper than they did a year ago, which would drive profits up. In the end, it probably won't cost Apple much more to build a 3G iPhone as it cost to make the first iPhones.

Therefore, we expect Apple to price the 3G iPhone at $399, the same amount an 8-gig iPhone costs today. They'll probably offer one with more memory for $100 more, as they do now. And we think Apple will offer the current iPhone -- without 3G service -- for $299, to reach a broader market. Remember that a big chunk of Apple's iPhone revenue and profit is from the estimated $12 to $18 that AT&T pays them per month, per subscriber. So it's even more in Apple's (AAPL) interest to sell as many phones as it can, even if they make less money off the gadget itself.

What could be more expensive with 3G? AT&T (T) service for the 3G iPhone. While it shouldn't cost AT&T much more to provide 3G service than it costs to provide slower service, 3G data service typically sells for $30/month, or about 50% more than the current iPhone's $20/month data service. We think Apple and AT&T will try to upsell the 3G iPhone as a higher-end product, so we think AT&T might tack on an extra $10/month for 3G iPhone service plans.

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