Nokia Finds Potential Profits in Mobile Market’s Low End
For all the attention on the high-end smartphone market, there are still profits to be made way down on the opposite end of the spectrum: The simple, low-fuss wireless phones that get used pretty much just to make phone calls.
But when it’s a phone that sells for a retail price of about $20 and yields a 30 percent gross margin, someone is certainly squeezing all they can out of their supply chain. That someone is Nokia, according to research firm IHS.
While the Finnish company that once dominated the world mobile market hasn’t had much luck with high-end smartphones of late, a teardown analysis of the Nokia 105, a simple no-frills phone aimed at developing markets, shows that Nokia still knows how to turn a profit in the less-sexy segments of the wireless market. The 105 has long battery life — 12.5 hours of talk time and 35 days on standby — and is ruggedized against dust and splashes of water. It has no Wi-Fi or other data connections, but it does have an FM radio and a flashlight.
The parts used to build the phone cost $13.50, which, after accounting for another 70 cents to assemble, leaves an implied margin of about 29 percent, IHS reckons.
The main component inside the 105 is a chip from Intel that IHS describes as a “phone on a chip.” Its formal name is the PMB7900, and it combines the baseband and the radio frequency transceiver pieces that talk to the GSM/GPRS wireless phone networks that dominate Europe. Also, who says Intel isn’t having any success in the mobile market?
There are only two other chips inside the 105, a transmit module from Skyworks and a NOR-type flash-memory chip from Micron. Add in a few passive components, and the total silicon cost inside the phone is $5.25, amounting to about 39 percent of the component cost. (I embedded a slide from IHS’s PowerPoint deck below, showing the relatively sparse board. Click to make it bigger.)
IHS compares the 105 to an older phone, the Nokia 1110 , built for a similar market segment. That phone required six chips to build, and carried roughly three times the component cost. “Therein lies the 105’s secret: By keeping features the same for nearly a decade, the Nokia 105 can integrate nearly all system functions into a single chip, dramatically reducing the cost to produce a cellphone,” IHS analyst Wing Lam said in a statement.
A relatively simple low-resolution color display adds another $2.25 to the 105’s component cost. In the unit taken apart by IHS, the display’s supplier was China’s Tianma Microelectronics, but there are likely others, meaning that the cost will probably come down over time as the result of competition.
And that would be good news, as Nokia reported a loss in its most recent quarter, though a smaller one than had been expected. Its biggest problem continues to be the fact that it’s swimming against the current of more successful smartphone vendors, primarily Apple and Google and its numerous allies in the Android camp. Its alliance with Microsoft hasn’t quite turned the tide, and so CEO Stephen Elop has been under some pressure to switch to Android but remains committed to Windows.