Apple iPhone 5 (Verizon (A1429) + AT&T (A1428)) Mobile Handset Teardown

IHS Insight Perspective

There is no shortage of commentary at IHS collectively on the iPhone 5 design and implications, and technically there are numerous takeaways - but some of the most important hardware differences include: a larger diagonal (4 inch) display with 1136 x 640 resolution and in-cell touch technology, the addition of multi-band LTE support, an A6 processor (dual-core with tri-core GPUs in 32nm), a smaller camera module (still 8MP though for the primary camera), a new docking connector (Lightning port) and an aluminum unibody design that ultimately ends up with a 7.6mm thickness.

As always with Apple - it's about fitting as many features as possible into a fixed, sub $200 BOM budget, which Apple achieves with ease - and ultimately the iPhone 5 comes in at almost the exact dollar budget we had estimated for the predecessor 4S model at the time of it's launch about one year ago. While retail price steps remain the same as they always have - Apple still manages to increase their profit margins by selling 16GB to 32GB upgrades for an additional $100 USD at retail, while NAND Flash pricing for Apple ($0.60 USD/GB) makes the retail differential very profitable. Furthermore, by not increase the NAND content for the last few years, but increasing the need for it (increased content, higher resolutions, etc.), this assures a higher ASP from the sales mix, and a higher profit margin.

Increasingly - there is a noteworthy absence of Samsung components in the iPhone, though Samsung still produces the A6 for Apple, and still is a big NAND flash supplier as well.

Overall Significance

If the iPhone 5 did not feature LTE it would have wreaked havoc with Apple's stock - it had to feature this and offer a better transitional feature set than the "disappointing" transition from iPhone 4 to 4S. Many argue that Apple is behind Samsung and other Android phones with better "box features" (bigger screens, micro SD card support, quad-core processors, etc.), but Apple has a strategy that is unique and they have spent the bulk of their upgrade budget on subtle differences that put Apple technology ahead of competitors with choices like in-cell touch, but also with their own approach to RF front-end design that no one else really competes with to date. Apple's adherence to the "one phone" ethos requires a lot of investment and creative design thought to resolve LTE band support issues that the average Joe does not care about - but Apple certainly does. The result is 3 iPhones (currently only 2) models worldwide, and we expect Apple to reduce this back to one or two models at most by the next generation of iPhone. Simplicity is the goal - even if it comes at a cost.

Feature Significance

The iPhone 5 features a 4 inch TFT display with 1136 x 640 resolution and in-cell touch technology (a first sighting in IHS teardowns). This new technology is nearly invisible to consumers, though the overall thickness and weight of the iPhone 5 are reduced by this new implementation of touch technology that eliminates, from Apple's supply chain, suppliers such as Wintek and TPK who provided discrete touchscreen panels which would sit atop the display.

The addition of multi-band LTE support is a costly challenge to Apple. Apple waited for others to spin their wheels and design first generation LTE phone designs that featured completely separate 3G legacy chipsets and RF/PA sections, which were supplemented (using all discrete components) by a host of 4G components which made 1st gen LTE designs costly and complex. By waiting for second generation chips like the MDM9615 baseband from Qualcomm, Apple got a much more integrated solution that fits in budget and within the desired physical envelope. But Apple's challenge was to end up, ideally if possible, with a single 4G LTE model with full backwards 3G support - which is not yet achieved, though without efforts by Apple, the iPhone could have easily experienced a SKU ballooning by supporting only the specific frequencies required by different carriers internationally. As was the case with the iPhone 4S, every attempt was made using solutions such as converged PAMs (developed with Avago), and, in this case, all components necessary to support up to 5 bands of LTE per version of iPhone 5. But even with all of this extra spend on components, and the first phone we have seen to support multi--mode, multi-band 3G and 5 bands of LTE, Apple is not yet able to achieve "one SKU" yet.

The iPhone 5 features many other noteworthy changes and additions like an aluminum unibody back. However, a solid enclosure would not allow for proper antenna transmit and receive functionality, so Apple left some "cutouts" at the top and bottom of the unibody for antennas. Another interesting approach to support multiple bands includes Apple's antenna implementation which includes two antenna connection points. These two points create antennas with various lengths to support various frequencies (antenna length is a function of wavelength) - which helps support multiple bands for all of the various air interfaces for the iPhone 5.

The A6 processor is interesting in that rather than just compete head on with other quad-core processors, the A6 features a dual core processor with 3 GPU cores. Ultimately, this architecture, implemented in 32nm process, seems to offer similar processing power if not greater, than competing quad-core apps processors.

Design Significance

The iPhone 5 features a 4 inch TFT display with 1136 x 640 resolution and in-cell touch technology (a first sighting in IHS teardowns). This new technology is nearly invisible to consumers, though the overall thickness and weight of the iPhone 5 are reduced by this new implementation of touch technology that eliminates, from Apple's supply chain, suppliers such as Wintek and TPK who provided discrete touchscreen panels which would sit atop the display.

The addition of multi-band LTE support is a costly challenge to Apple. Apple waited for others to spin their wheels and design first generation LTE phone designs that featured completely separate 3G legacy chipsets and RF/PA sections, which were supplemented (using all discrete components) by a host of 4G components which made 1st gen LTE designs costly and complex. By waiting for second generation chips like the MDM9615 baseband from Qualcomm, Apple got a much more integrated solution that fits in budget and within the desired physical envelope. But Apple's challenge was to end up, ideally if possible, with a single 4G LTE model with full backwards 3G support - which is not yet achieved, though without efforts by Apple, the iPhone could have easily experienced a SKU ballooning by supporting only the specific frequencies required by different carriers internationally. As was the case with the iPhone 4S, every attempt was made using solutions such as converged PAMs (developed with Avago), and, in this case, all components necessary to support up to 5 bands of LTE per version of iPhone 5. But even with all of this extra spend on components, and the first phone we have seen to support multi--mode, multi-band 3G and 5 bands of LTE, Apple is not yet able to achieve "one SKU" yet.

The iPhone 5 features many other noteworthy changes and additions like an aluminum unibody back. However, a solid enclosure would not allow for proper antenna transmit and receive functionality, so Apple left some "cutouts" at the top and bottom of the unibody for antennas. Another interesting approach to support multiple bands includes Apple's antenna implementation which includes two antenna connection points. These two points create antennas with various lengths to support various frequencies (antenna length is a function of wavelength) - which helps support multiple bands for all of the various air interfaces for the iPhone 5.

The A6 processor is interesting in that rather than just compete head on with other quad-core processors, the A6 features a dual core processor with 3 GPU cores. Ultimately, this architecture, implemented in 32nm process, seems to offer similar processing power if not greater, than competing quad-core apps processors.

Target Market

Mass market

Released

Sept 2012

Pricing and Availability

Starting at $649 USD for US Market 16GB version without subsidies

The retail pricing structure of iPhones has remained static for some time, and continues to stay at the same price points for this generation (at least in the US market). The 3 configurations sell, without subsidy for $649 (16GB), $749 (32GB) and $849 (64GB) USD at the time of launch (Sept 2012). Note that Apple margins are positively affected by other pricing schemes in other countries and currencies - where (in USD) the sales prices are usually even higher.

Worldwide*

This version, the A1429 was purchased from Verizon in the US. The A1428, from ATT is the second known iPhone 5 variant. Each supports a different set of LTE frequencies, which allow these two versions to cover most world markets, though we expect a 3rd variant to be launched shortly for China Telecom.

Volume Estimations

60,000,000 Total Units
2 Total Years

For the purposes of this teardown analysis, we have assumed an Annual Production Volume of 60,000,000 units and a Product Lifetime Volume of 2 year(s).

Teardown volume and production assumptions are primarily used for our cost analysis in terms of amortized NRE and tooling costs, especially for custom components specific to the model being analyzed (mechanical components especially). Unless assumed volumes are different by an order of magnitude, minor changes in volume (say 1 million vs. 2) rarely have a large net effect on our final analysis because of this.

Market Performance

The iPhone 5 represents a strong smartphone launch by Apple. IHS forecasts the iPhone 5 will be a major success in the market, helping to drive Apples smartphone shipments in 2012 to 149 million units, up 60 percent from 93 million in 2011. However, the bulk of its volume will come in the next few years as Apples growth is projected to grow 31% year over year from 2012 to 2013. The anticipate lifetime volume for iPhone 5 will likely exceed 200M.

Cost Notes

Apple has incredible pricing leverage, but also often has premium specifications. It would be a mistake, for example, to assume that Apple simply use commodity NAND flash, or common batteries - everything with Apple is a premium selection, but that usually comes at a very low price nonetheless. Others who have estimated costs in the media are unaware of the special specifications in some cases, and the uncommon cost drivers that IHS iSuppli's analyst team has the distinction of being able to dig into. Though our estimates are indeed estimates, they account for real market conditions and circumstances unique to Apple, and represent a collective group knowledge of the Apple and general electronics supply chain.

Next to Samsung, Apple have the most pricing leverage with suppliers in the handset space currently. Other handset OEMs are starting to distance themselves negatively on component pricing, as they lose supplier relevance due to market share losses, or attempt to negotiate more lax payment terms, that ultimately make such handset OEMs a lower priority to suppliers, and can cost these OEMs with higher component prices.

The Top 10 components listed below account for 72% of the total BOM of the iPhone 5 .

Display / Touchscreen Module - 4.0" Diagonal, 16.7M Color TFT, 1136 x 640 Pixels, 800:1 Contrast Ratio, 500cd/m2 Brightness, w/ In-Cell Multi-Touch- (Qty: 1)
Samsung Semiconductor APL0598 Application Processor - Dual-Core ARM Cortex CPU, Tri-Core GPU, PoP- (Qty: 1)
Qualcomm MDM9615 Baseband Processor - Multi-Mode, Multi-Band, GSM/CDMA/EVDO RevB/HSPA+/LTE, 28nm, w/ Elpida Mobile DDR- (Qty: 1)
Primary Camera Module - 8MP, BSI CMOS, 1/3.2" Format, Auto Focus Lens- (Qty: 1)
Enclosure, Main Chassis - Machined Aluminum, Anodized, Painted, Printed, w/ Ultrasonic Bonded Plastic, & 34 Metal Inserts- (Qty: 1)
SK Hynix H2JTDG8UD2MBR Flash - NAND, MLC, 16GB- (Qty: 1)
SK Hynix H9TKNNN8KDMRBR-NGM SDRAM - Mobile DDR2, 1GB, PoP- (Qty: 1)
Murata BT / WLAN Module - Contains Broadcom BCM4334, IEEE802.11 a/b/g/n, Bluetooth V4.0+HS- (Qty: 1)
Amperex Technology GB-S10-363292-0100 Battery - Li-Polymer, 3.8V, 1440mAh, 5.45Whr, w/ Integral Flex, & Board to Board Connector- (Qty: 1)
10-Layer - FR4/RCF HDI, Any Layer Stacked Via, Lead-Free, Halogen-Free- (Qty: 1)

Not Included in Analysis

The total materials and manufacturing costs reported in this analysis reflect ONLY the direct materials cost (from component vendors and assorted EMS providers), AND manufacturing with basic test. Not included in this analysis are costs above and beyond the material manufacture of the core device itself cost of intellectual property, royalties and licensing fees (those not already included into the per component price), software, software loading and test, shipping, logistics marketing and other channel costs including not only EMS provider and the OEMs margin, but that of other resellers. Our cost analysis is meant to focus on those costs incurred in the manufacture of the core device and exceptionally in some circumstances the packaging and literature as well.

We do provide an Excel tab "Overall Costs" where a user can enter their known pre and post production costs to build a per unit cost reflective of theirs actual expenditures.

Manufacturing Notes

Per IHS iSuppli's Outsourced Manufacturing Research Area:

Hon Hai / Foxconn - The majority of the iPhone 5 is built in Zhengzhou where Foxconn employs an estimated 200,000 staff at this point. The assembly used to take place entirely in Shenzhen, but Foxconn moved considerable production capacity to Zhengzhou due to lower labor costs. Foxconn has more than 10 sites in China. Not all are involved with the iPhone assembly.

Fulfillment capacity at launch has been rumored at approximately 15mm per month. Issues have been more related to getting yields on certain components (see below), rather than an issue at Hon Hai Foxconn with "people" capacity. That leaves little buffer stock.

Apple are feeding Apple stores, carrier partner stores and then retail stores - in that order, which creates greater delays for partner stores and retailers other than Apple stores which have always had top priority as it draws consumer traffic into Apple's total product realm.

Jabil - Jabil reported shortly after the iPhone launch that they build the casing. The build schedule has forced them to suddenly have a rush of hiring. In addition, the schedule window has been tight and they haven't been able to get high enough yields. So a business that should get them relatively good margins this quarter actually came in well below what they have been saying they could get for more than a year. Essentially this means 5% EBIT compared to 7% expectations.

Another issue that has come up is the fact that they have now spent $500mm on capex for two straight years and plan for the same this next year. Nearly 80% of the capex is to support Apple. They only spend $100-200mm on the rest of the business normally. Apple is about $2bln out of the $17-18bln of revenue for them right now.

Something to run through with folks in the food chain is the fact they need to produce around 600k per day to meet the expectations for 50mm units in the December quarter. That's about 35% more than they produced a year ago. So there has been a strain on the entire supply chain at this point.

The Jabil facility is in Wuxi (expanded recently) and they are adding another site in Chengdu (completion in a couple months) to support growth.

Country of Origin

Based on our knowledge of iPhone 5 production, and IHS research on loaded regional labor rates within China, IHS iSuppli teardowns now feature regional China labor rates rather than "average" rates for China. This helps create a more nuanced view of manufacturing costs and calculations in our analyses. See the "Mfg Costs" tab in this spreadsheet for details on regional China labor rates.

Box Contents - China
Camera Assembly - China
Display / Touchscreen - China
Main PCB - China
Misc PCB Assemblies - China
Other - Enclosures / Final Assembly - China

Country of origin assumptions relate directly to the associated cost of manufacturing, where calculated by iSuppli. In the cases of finished sub-assemblies (such as combo modules), we do not explicitly calculate internal manufacturing costs, but rather assess the market price of the finished product in which case country of origin assumptions may or may not have a direct effect on pricing.

Labor rates are applied directly only to hand inserted components and systems in our bill of materials, and although regional assumptions do, these new rates do not have a direct effect on our modeled calculations of placement costs for automated SMD assembly lines. Auto inserted components (such as SMT components) placement costs are calculated by an iSuppli algorithm which allocates a cost per component based on the size and pincount of the device. This calculation is affected by country or region of origin as well.

Design Complexity

Component counts by assembly and the number of assembly are indicators of design complexity and efficiency.

Component Qty: 1139 - Main PCB
Component Qty: 1 - Display / Touchscreen
Component Qty: 134 - Other - Enclosures / Final Assembly
Component Qty: 4 - Camera Assembly
Component Qty: 130 - Misc PCB Assemblies
Component Qty: 18 - Box Contents
Component Qty: 1426 - Grand Total

Though our history with many 3G mobile phone teardowns suggests a general rule of thumb for components of about 1000 components per phone -first generation LTE designs added a lot of component costs and made the component counts in those designs very elevated - closer to 1500 components per phone. With second generation LTE designs, such as this, the component counts and total costs are starting to come down again.

This iPhone design, from a purely "total component count" point of view is in fact a well-integrated design with a very modest component count. But Apple products are always complex, regardless of component counts - as Apple specs are demanding, an the construction requires tight tolerances for the components that go into it. Apple products, because they push the envelope, always pose production challenges.

Furthermore, when you consider all of the multi-mode, multi--band support, this iPhone 5 is very competitive with anything from Samsung or other OEMs.

Design Notes

They key choices in all Apple iPhone designs are the display and touchscreen, and the choice of CPU, and with this generation both areas get an upgrade with a larger 4" screen with integrated in-cell touch sensing (see above for details, as well as our supplementary display analysis from the IHS DisplayBank teardown team. The display is multi-sourced with 2 known sources and a 3rd seeking qualification (Sharp).

Also - as always - Apple designs the electronics to be CPU-centric, and with the APL0598 (A6 processor) the legacy continues - with a process shrink from the dual-core A5 (in 45nm), to the dual-core with three core GPU A6 in 32nm, there is even more processing power. The die process shrink also helps offset the power requirements that would otherwise be increased with the added performance.

The LTE section is run by the Qualcomm chipset pair of the MDM9615 baseband processor (again a process shrink from the iPad 3's MDM9600 multi-mode chip) paired with the RTR8600 RF transceiver. Other noteworthy chip choices include a pair of audio codec and amplifier chips from Cirrus Logic, an A6 power management solution from longtime supplier Dialog, (the QCOM chipset is supported by a QCOM PM8018 power management chip of its own), another Broadcom touchscreen controller (long term supplier of such solutions to Apple iPhones), with a Texas Instruments line driver IC for touch. Broadcom also supplies the WiFi/BT Combo chip - this time in the form of the BCM4334 (vs. the longstanding predecessors the BCM4329 and BCM4330).

The iPhone 5 continues with the dual antenna design first implemented in the iPhone 4S. In order to accommodate for the multiple bands of LTE support, Apple incorporated additional complexity to the secondary antenna structure design to switch between low band and high band LTE frequencies. While other LTE handset designs use a third physical antenna to accommodate for low-band LTE frequencies, Apple designers employed a Skyworks antenna switch at the secondary antenna section to keep the physical antenna design simple but accommodating for a virtual 3rd antenna. This design allows the iPhone 5 to be properly tuned to the LTE frequencies used for bands 5/13/17 versus those of LTE bands 1/3/25.