Nokia 900 BOM of USD209 thanks to tight hardware/software cooperation, says IHS iSuppli

April 12, 2012 // Julien Happich

The Lumia 900 carries a bill of materials (BOM) of USD209 according to a preliminary IHS iSuppli teardown analysis. When the $8.00 manufacturing cost is added in, the cost to produce the Lumia 900 rises to $217.

The BOM represents 46 percent of the Lumia 900's $450 retail price, without a service contract. In contrast, Samsung’s S II Skyrocket—an Android smartphone that has a very similar feature set to the Lumia 900—carries a $236 BOM, and a retail price that is $100 higher, at $550, as presented in Table 1 attached. The Skyrocket’s BOM amounts to only 43 percent of its retail price.

This cost-reduced design reveals a close cooperation between the handset brand, Microsoft Corp., and semiconductor supplier Qualcomm Inc. This cooperation mimics Apple Inc.’s holistic approach to hardware and software development. This has allowed Nokia to produce a smartphone that has high-end features, but employs less expensive electronic components than are used in comparable products based on Google Inc.’s Android operating system.

This teardown cost assessment is preliminary in nature and accounts only for hardware and manufacturing costs and does not include additional expenses such as software, licensing, royalties or other expenditures.

“With the Lumia 900, Nokia, Microsoft and Qualcomm have taken a page from Apple Inc.’s playbook by closely tying together the hardware and software to produce a full-featured smartphone that is based on relatively inexpensive electronic components,” said Andrew Rassweiler, senior principal analyst, teardown services, at IHS.

“One of Apple’s advantages over Android has been the company’s complete control of both the hardware and operating system software, helping it to produce efficient and economical iPhone designs. 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.”

The Lumia 900 represents a make-or-break effort by Nokia and Microsoft to re-establish their foothold in the smartphone business. While Nokia is willing to accept hardware lower margins to carve out smartphone market share, Microsoft also is pitching in on the operating system software side.

“Given the highly strategic partnership with Nokia, we believe Microsoft substantially discounted its software licensing fees on the Lumia 900 to accommodate the overall lowered manufacturing costs,” said Wayne Lam, senior analyst, wireless communications at IHS. “Microsoft has had limited success with its previous Windows Phone 7 original equipment manufacturers, such as HTC, Samsung and LG. However, Microsoft now is looking to double-down with Nokia to promote Windows Phone 7 and grow the platform.”

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. Most new smartphone designs at present employ dual-core applications processor integrated circuits (ICs), with some even adopting quad-core ICs. However, because of its efficient hardware/software design, the Lumia 900 is able to employ a single-core APQ8055 processor from Qualcomm while still achieving competitive performance. The IHS estimates the cost of this device at $17.00. In comparison, the Samsung S II Skyrocket employs Qualcomm’s dual core APQ8060, which costs $5.00 more at $22.00.

The Lumia 900’s design allows it to operate with only 512 Megabytes of DRAM, half the 1 Gigabyte used in the Samsung Skyrocket and most other comparable smartphones. Because of this, the Lumia 900’s total memory cost amounts to $27.00, $5.00 less than the $32.00 cost for the Skyrocket. Even lower memory densities are possible for use with Windows Phone, allowing the development of even more cost-competitive smartphones in the future.

“Currently, the minimum requirement for Windows Phone 7.5 is a Qualcomm MSM7x27 series integrated applications processor with just 256 Megabytes of DRAM,” Lam said. “This expands the addressable market for Windows Phone 7.5 devices, allowing Nokia and Microsoft to compete in the low-cost smartphone market now dominated by Android.” With its central role in the development of the Lumia 900, Qualcomm is a big design winner in the smartphone, supplying its applications processor, baseband processor, power management ICs and radio frequency (RF) transceiver. Other major design winners include Samsung Mobile Display, which supplies the Lumia 900’s display/touch screen module. At $58.00, or 28 percent of the BOM, the display/touch screen module represents the most expensive single subsystem in the Lumia 900.

Micron Technology Inc. is the supplier of the 16 Gigabytes of NAND flash memory for data storage in the specific Lumia 900 analyzed by the IHS. The company also is the maker of an additional 1 gigabit of NAND employed for firmware support of the baseband chip. NAND flash always represents a major cost component in smartphone designs, and Nokia almost certainly is using multiple sources for these commodity memory parts. Elpida Memory Inc. made the synchronous DRAM (SDRAM) in the Lumia 900 analyzed by IHS. Again, Nokia is likely employing other suppliers for these components.

Visit IHS at www.ihs.com

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