Nokia's Lumia 900 Can't Stack Up Against the iPhone

Nokia's (NYS: NOK) fancy new Lumia 900 may be the Finnish giant's new belle of the ball, but it also costs a pretty penny. The flagship Microsoft (NAS: MSFT) Windows Phone device is getting a lot of backing from carrier partner AT&T (NYS: T) , which is gunning up its marketing engines into high gear to push its new exclusive smartphone.

Although if you were to compare the component costs next to Apple's (NAS: AAPL) latest iPhone 4S, it doesn't paint a very pretty margin picture for Nokia. Apple's device sells for more and costs less, spelling out juicier margins for Cupertino. Here's how the iSuppli bill of material estimates for some of the more relevant (and expensive) components stacks up:

Component

Nokia Lumia 900

Apple iPhone 4S

Display and touchscreen $58 $37
Processor $17 $15
Memory $27 $28
Wireless chips $38 $24
Cameras $18 $18
Power management $9 $7
Mechanical and electro-mechanical $18 $33
Total component cost $209 $190
Unsubsidized retail price $450 $649
Gross margin ($) $241 $459
Gross margin (%) 53.5% 70.7%

Source: iSuppli.


That's a pretty major margin advantage for Apple to enjoy on its newest iteration of the iPhone, which also helps explain why Nokia's overall gross margin of 27.7% last quarter hardly compares with the 47.4% gross margin that the iPhone maker enjoyed last quarter.

On the cost side, there are a couple of notable differences worth mentioning on why the Lumia 900 racks up more component costs than the iPhone.

The display and touchscreen combination costs much more on the Lumia 900, but there are two big differences. The Lumia 900 features a notably larger 4.3-inch display, compared with the 3.5-inch iPhone Retina Display. The Lumia 900's display is also an AMOLED display from Samsung, which are pricier to manufacture.

Both devices use wireless chips from Qualcomm (NAS: QCOM) , but the Lumia 900 uses one with 4G LTE capabilities, while the iPhone will likely see 4G LTE data speeds later this year served up by Qualcomm's newest 28-nanometer baseband chips. For now, the current iPhone's 3G speeds are slower than the Lumia 900's data connection.

These cost estimates exclude things like manufacturing, marketing, distribution, or software R&D. Of course, Apple spends very little on R&D in percentage terms relative to its revenue, and Microsoft is the one pitching in the Windows Phone operating system on the Lumia 900.

Nokia's fate looks dimmer each quarter, with its first quarter smartphone market share getting slashed by nearly two-thirds and falling into single-digit territory as Samsung and Apple take over. Its margins aren't helping much, either.

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At the time this article was published Fool contributor Evan Niu owns shares of AT&T and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Qualcomm, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft and Apple and creating a bull call spread position in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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4 Comments

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kozmo13

silly article. the game is between apple and microsoft and google. the cost of the screen is totally irrelevant. the advertising and sales done on the phone is all that matters.

you really think MSFT is going to let anything happen to Nokia? their #1 partner in mobile.. mmmhhmmm... well thought through.

June 09 2012 at 6:44 PM Report abuse rate up rate down Reply
Coty Jordan

Well I love my new Lumia 900. Getting the most for less is great for me. The most people I have talked to are waiting till this fall when WP8 comes out, because no one knows if the WP8 OS will be compatible with the older WP7.5 devices. I look forward to Nokia and Microsoft to take move up pretty fast, who knows they might even surpass Apple.... Lots of turned heads looking at Nokia right now.

June 06 2012 at 8:41 AM Report abuse rate up rate down Reply
Wayne Lane

The margin is not the problem; 54% Margin is very good - the problem is the exclusivity with ATT - ATT is a substandard carrier that is plagued by customer service issues. As a share holder of NOK I would have much rather have had a broad market release to multiple carriers- there are still millions of people that prefer MSFT.

June 05 2012 at 8:59 AM Report abuse rate up rate down Reply
Hammad Tauqeer

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June 04 2012 at 11:58 PM Report abuse rate up rate down Reply