Phone prices: A Fair Question

[stormkroe]

Ok, gonna re-iterate this question now with this announcement http://www.engadget.com/2012/06/27/google-makes-the-nexus-7-tablet-official/

Are we inline to see sub $300 phones in the near future? Also, thanks to kaerflog, Ritter, and lyfer for d-bagging this thread originally.

Once upon a time...

Couldn't resist. Anyway, I'm looking for some opinions on an issue I've been thinking about. With the release of $249 and now $199 tablets, featuring Tegra 3 or Krait, how can phones continue to more than double those prices? I know that modems incur additional costs, but wouldn't that be offset by using a smaller (4.x" vs 7.x") screen? I've never seen a BOM on either type of device to know what else is different, but would like to hear your opinions and reasoning.

Spanks

 

[zerocool84]

Carrier subsidies plus most of those cheap tablets are not great quality.

 

[Wonderful Pork]

Carrier subsidies

I kind of get what you're saying, but it still doesn't make much sense.

If Amazon can sell the Kindle Fire for $200 (albeit at some amount of loss) how come unsubsidized phone devices cost 2.5-3x that? And if Amazon is losing $200-$400 per sale of the Kindle Fire how much longer will it be before somebody gets fired for that decision?

I suppose supply and demand could be an answer (carriers buy them at $650 and subsidize down to $200 which the customer pays since it seems like a good deal) but I find it kind of hard not to see how the end customer isn't getting the short end of the stick.

Apple had the right idea with the first iPhone, which I bought for $400. Of course the carrier won in the end since it was still locked (though I paid "full price") and had to switch to a new, higher priced plan. And, there is the fact that nobody bought the damn things because they were $100-$350 more than other phones.

If subsidies were removed and smartphone pricing was corrected to a level more in line with cost (not saying companies don't have the right to profit, and knowing development, marketing, costs money etc) then it would really shake up the industry and the customers would win long term.

While we're at it, can I please drop the "mandatory" data plan from my monthly plan? If I want data, I'll sign up for it! Same with mandatory text messaging for feature phones and all that crap.

 

[Pliablemoose]

It would be nice, but our government has sided with the carriers. Good luck changing any of that.

 

[386DX]

I kind of get what you're saying, but it still doesn't make much sense.

If Amazon can sell the Kindle Fire for $200 (albeit at some amount of loss) how come unsubsidized phone devices cost 2.5-3x that? And if Amazon is losing $200-$400 per sale of the Kindle Fire how much longer will it be before somebody gets fired for that decision?

Amazon can sell the hardware at cost (or below) because they don't make there money on hardware sales. They make it on there Amazon store. Other hardware manufacturer doesn't have that revenue stream and profits are directly related to selling price.

Also take into consideration that Amazon sells directly to the customers. Other phone/tablet makers have a distribution channel to go through. For example say HTC's tablet costs $250 to make. HTC needs to make a profit on that so they may sell it to wholesalers for $325. Those wholesalers need to make a profit to so they may sell to the retail stores for $375. Now the retail store needs to make a profit as well so they may mark it up another $50 and ultimately the customer pays $425 for a device that Amazon may sell for $200.

Finally when people wonder why a phone costs more then a tablet when you would think a tablet costs more to make, but in reality that isn't always the case. If you compare the cheap tablets to the high end phones you will notice the phones generally have better specs, so the parts actually costs more. Even though the tablet has a bigger screen they are not always at the same quality level as a phones screen. Lets say we compared the costs of the new iPad screen with the iPhone 4s screen, according to the BOM the price difference between those two screens is less then $40. One can reasonably guess that the screens on those cheap sub $200 is going to be less then the iPhone 4s screen. Another area where the cheap tablets save costs is because they aren't as size constraint as on a phone they often use the older parts (ie. last gens CPU/GPU) that are often cheaper as vendors try to dump excess inventory of older parts. Finally the cheap tablets also lack things like cameras (or use very cheap ones), and wireless radios (3G/4G/LTE). These features usually require a dedicated chip and antennae so not having them cuts even more cost.

 

[alent1234]

Apple's gross margins are in the 40% range. Fairly high but not the highest in history.

The bill of materials for the 4s was $188 last year. Lots of other costs like carrier testing and licensing thousands of patents have to be paid. And I never believed that carriers pay anything close to msrp to apple and Samsung

 

[lothar]

It would be nice, but our government has sided with the carriers. Good luck changing any of that.

This.

-Lothar

 

[kaerflog]

First of all, I don't see any $249/$199 featuring Tegra3 or Krait unsubsidized.
If you find one, let me know.
Supposably, Asus will release a $249 Tegra3 tablet but I'd believe it when I see it.

 

[stormkroe]

First of all, I don't see any $249/$199 featuring Tegra3 or Krait unsubsidized.
If you find one, let me know.
Supposably, Asus will release a $249 Tegra3 tablet but I'd believe it when I see it.

These prices have been headlining for the last few weeks. They are going to happen. The question I have is if they can be deemed profitable enough at that price without the support of a personal ecosystem like Amazon's app store, then why doesn't it translate into phones which could possibly have an even cheaper bom, COMBINED with the ability for the retailer (att, bell, telus) to make their real profits off of contracted data/voice, that are around the same price. Or even $100 more? Something just doesn't line up.

 

[kaerflog]

These prices have been headlining for the last few weeks. They are going to happen. The question I have is if they can be deemed profitable enough at that price without the support of a personal ecosystem like Amazon's app store, then why doesn't it translate into phones which could possibly have an even cheaper bom, COMBINED with the ability for the retailer (att, bell, telus) to make their real profits off of contracted data/voice, that are around the same price. Or even $100 more? Something just doesn't line up.

Asus also promised a $199 netbook before netbook existed and never came out with one.
You're discussing something that doesn't exist yet.
This thread is useless.

 

[stormkroe]

Most of the things we discuss here don't exist yet, the speculation is what makes it fun. I'll try to adhere to your accepted list of thread subjects in the future. Unless you haven't written it yet, in which case forget I brought it up.

 

[Lyfer]

This thread is going places.

 

[kaerflog]

You have a hard time differentiate what future product will be real or not real.
- Samsung will come out with a Galaxy3 = REAL
- Apple will release an iPhone 5 = REAL
- Manufacturers will release Tegra and Krait tablets = REAL
- Tegra3 and Krait tablets @ $199 and $249 = NOT likely to be REAL.
The bill of materials for the Kindle Fire alone was around ~$200 and the specs were average at best.
You ain't going to see $199/$249 Tegra3/Krait tablets anytime in the near future.

 

[OS]

probably some combination of both, very small profit margins on tablets, very large profits on phones.

as mentioned already, if a samsung galaxy player is ~$250, the radio and a couple GB of flash do not cost ~$400 more in their top line phones.

Also partially because of the phone/contract subsidy model, there is pretty much zero incentive for carriers to negotiate lower phone prices. It allows them to lock their customer base into longer contracts.

the flipside to this is, if you look at tmobile's phones, they sell midrange phones (samsung exhibit II 4G, nokia lumia 710) at much lower prices off contract vs contract. Both these phones are $350 contract price vs $200 promotional prepaid.

 

[Rifter]

You have a hard time differentiate what future product will be real or not real.
- Samsung will come out with a Galaxy3 = REAL
- Apple will release an iPhone 5 = REAL
- Manufacturers will release Tegra and Krait tablets = REAL
- Tegra3 and Krait tablets @ $199 and $249 = NOT likely to be REAL.
The bill of materials for the Kindle Fire alone was around ~$200 and the specs were average at best.
You ain't going to see $199/$249 Tegra3/Krait tablets anytime in the near future.

100% this. Post links to website with these tablets on sale for these prices or thread is useless.

Not to mention phones are smaller, you always pay more for smaller high powered tech. look at laptop prices vs desktop PC prices. You always get more for your money buying a desktop vs a laptop. Same thing with tablet vs phone.

 

[DaWhim]

i don't know what you are talking about. i bought a nokia lumia 710 for $200+tax shipped from tmobile prepaid.

 

[stormkroe]

You have a hard time differentiate what future product will be real or not real.
- Samsung will come out with a Galaxy3 = REAL
- Apple will release an iPhone 5 = REAL
- Manufacturers will release Tegra and Krait tablets = REAL
- Tegra3 and Krait tablets @ $199 and $249 = NOT likely to be REAL.
The bill of materials for the Kindle Fire alone was around ~$200 and the specs were average at best.
You ain't going to see $199/$249 Tegra3/Krait tablets anytime in the near future.

Quoted for historical accuracy.

 

[TuxDave]

Quoted for historical accuracy.

Hindsight is overrated.

 

[dagamer34]

You have a hard time differentiate what future product will be real or not real.
- Samsung will come out with a Galaxy3 = REAL
- Apple will release an iPhone 5 = REAL
- Manufacturers will release Tegra and Krait tablets = REAL
- Tegra3 and Krait tablets @ $199 and $249 = NOT likely to be REAL.
The bill of materials for the Kindle Fire alone was around ~$200 and the specs were average at best.
You ain't going to see $199/$249 Tegra3/Krait tablets anytime in the near future.

The $249 Tegra 3 tablet ASUS was pushing at CES IS the $199 Nexus 7, but Google is making literally zero money off of it (basically subsidizing when you factor in marketing plus any other non-hardware costs).

There's also nothing stopping Google from coming out with a Nexus 10 sold at cost, though it's a wonderful way to piss off all other OEMs to the point no one will make hardware for your platform. At some point, everything will become vertically integrated silos where the software vendors are making the tablet hardware and everyone else is screwed.