In my Lumia 900 teardown analysis, I suggested that Nokia could sell the handset for $99 in part because they used a single-core processor and only 512MB of RAM. A recent cost analysis of the Lumia 900's hardware supports this idea.
Market research firm IHS iSuppli estimated that the Lumia 900 has a bill of materials (BOM) of $209 (US) and a manufacturing cost of $8. Excluding development, marketing, or software licensing costs, this brings the cost of each Lumia 900 to $217.
As part of their analysis, IHS iSuppli compared the Lumia 900 to the Samsung Galaxy S II Skyrocket--a handset with a "very similar feature set". With its dual-core application processor, 1GB of RAM, and 4.5-inch Super AMOLED Plus display, the Skyrocket has a BOM of $235.50 ($26.50 more than the Lumia 900). Here's iSuppli's assessment of the price difference:
"The cost reductions of the Lumia 900 hardware primarily are derived from its use of a single-core applications processor, and its low dynamic random access memory (DRAM) density requirements."Table 1 shows the cost breakdown for the components inside the Lumia, Skyrocket, and iPhone 4S (16GB). If IHS iSuppli's analysis is accurate, the data reveal some interesting facts.
Nokia shaved $5 of the Lumia 900's cost by using 512MB of RAM instead of the 1GB found in the Galaxy S II Skyrocket. The Lumia's 4.3-inch AMOLED display and touchscreen cost $6 less than the Skyrocket's hardware. The Lumia's single-core, 1.5GHz application processor was $5 less than the Skyrocket's dual-core, 1.5GHz processor. And, the list goes on. In every hardware category, except Wireless, the Lumia cost less than the Skyrocket. The total savings for Nokia was $26.50. This cost difference may not sound like much, but when you sell, or hope to sell, millions of handsets every dollar helps.
The cost difference between the Lumia 900 and iPhone 4S is also interesting. Nearly every iPhone 4S component costs less than its Lumia 900 counterpart. Only the iPhone 4S' memory, battery, and mechanical, electro-mechanical, and other hardware cost more. The iPhone 4S' BOM is $20 less than the Lumia 900's BOM. Given the iPhone 4S' starting price of $199 and the Lumia's $99 price (both with contacts), Apple appears to be making more per handset than Nokia--when considering just hardware costs. IHS iSuppli appraised the situation as follows:
"For the Lumia 900, Nokia and Microsoft worked in close partnership with Qualcomm to develop and optimize the software stack in order to take full advantage of the hardware. But while Apple capitalizes on its low hardware costs to attain industry-leading margins, Nokia is using this approach to offer an inexpensive phone intended to compete on the basis of price."
In my teardowns of the Lumia 900 and HTC Titan II, I noted that the hardware inside these handsets was partially determined by their operating system. Windows Phone 7.5 doesn't support dual-core processors and runs on as little as 256MB of RAM. I didn't have any trouble running Windows 7.5 on the single-core processor and 512MB of RAM found in both devices.
By combining Microsoft's mobile OS, hardware that cost less than competing devices, and a willingness to accept a lower margin on each device (at least in terms of hardware cost), Nokia was able to aggressively price the Lumia 900 at $99. Only time will tell if Nokia's efforts will make the Lumia a success.More Nokia and Lumia 900 news and analysis:
- Nokia Lumia 900: A review for business professionals (TechRepublic)
- Nokia Lumia 900 review (CNET)
- European carriers: Nokia's Lumia smartphone "would be much easier to sell" if it ran Android (ZDNet)
- Nokia's Elop: Lumia 'actual sales have been mixed' (ZDNet)
- AT&T and Amazon out of stock of Lumia 900; Nokia succeeding in the U.S. so far (ZDNet)
- Biggest hurdle facing Nokia -- "It's Lumia or bust" (ZDNet)
Bill Detwiler has nothing to disclose. He doesn't hold investments in the technology companies he covers.
Bill Detwiler is Managing Editor of TechRepublic and Tech Pro Research and the host of Cracking Open, CNET and TechRepublic's popular online show. Prior to joining TechRepublic in 2000, Bill was an IT manager, database administrator, and desktop support specialist in the social research and energy industries. He has bachelor's and master's degrees from the University of Louisville, where he has also lectured on computer crime and crime prevention.