Arik Hesseldahl

Recent Posts by Arik Hesseldahl

Teardown Shows Nokia’s Lumia 900 Costs $209 to Build

As smartphones go, the Lumia 900 has a lot of hopes tied up into it. It represents the collaboration of Microsoft, the software behemoth on the PC that has struggled in recent years to make a go of the smartphone business, and Nokia, once the king of wireless phones, period, now struggling to get back in the game versus Apple and Google.

So far, the launch hasn’t gone quite so well. First there was a lackluster review. Then, days after going on sale on Easter Sunday, the company has admitted to a software glitch and is offering people who bought one a $100 credit in addition to a software patch. The credit makes the phone free to buyers willing to take a two-year service contract.

Now the market research firm IHS iSuppli has taken a Lumia 900 apart and, in a report shared with AllThingsD that will be released later today, has determined that it costs Nokia about $209 to build. And, judging from the parts being used, it’s not exactly built like the most cutting-edge phone on the market.

In fact, it seems like Microsoft and wireless chipmaker Qualcomm are both making an effort to showcase how efficient Windows Phone 7 for mobile can be; at the same time, they seem to be aiming to entice other hardware manufacturers by demonstrating that a full-featured smartphone can be built using components that are about a generation behind the current high end, and therefore cheaper, says Andrew Rassweiler, the iSuppli analyst who supervised the teardown.

For example, the teardown found that the Lumia 900 uses a single-core Qualcomm chip that costs $17 as its main applications processor; a phone with similar features running Google’s Android OS, such as Samsung’s Galaxy SII Skyrocket, uses a higher-end dual-core processor that costs $22.

“It appears what Microsoft and Qualcomm and Nokia are trying to do here — and this is being driven by Microsoft more than anyone else — is streamline the OS so it can run on a lighter processing platform,” Rassweiler told me. “The point being is to undercut the higher end phones.”

The choices don’t end with the processor. The phone contains only 512 megabytes of DRAM memory, where most phones would use one gigabyte. And the trend is expected to continue, as the next generation of Microsoft’s mobile OS will require even less memory.

Another example: The Bluetooth chip. Nokia is using a slightly older chip from Broadcom, and not the latest, greatest Bluetooth part. The difference between them is only $2.50, but it serves as another example showing that Nokia is aiming to compete on price.

For Nokia, the strategy seems to be one of aiming to compete against other phones on price, while offering similar features. The Lumia is thought to sell for $450 at retail without a subsidy, or about $200 lower than Apple’s iPhone 4S, which starts at $649 without a contract, depending on model, and costs between $188 and $245 to build.

Microsoft is also thought to be helping Nokia out, says iSuppli’s Wayne Lam, who also participated in the teardown analysis. While software costs are not considered in a teardown analysis, he says Microsoft is thought to be making less than $5 per phone in licensing fees on the Windows Phone 7 operating system, far lower than the $15 per device it is said to want. That would be in line with the $3 per phone price that Nokia is thought to have paid in licensing fees for the Symbian OS it used previously, and of which it was a partial owner. “Nokia is getting a fantastic discount,” Lam told me.

One place where Nokia didn’t skimp? The gyroscope chip, which determines how the phone is being moved. It contains the same gyroscope chip from STMicroelectronics that goes into the iPhone 4S. There are, apparently, some things on which you simply can’t compromise.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work