187.51

A new ITU telecommunication standard? The end of an IP address? Not quite, 187.51 is the bill of materials in USD for the iPhone 4.

Like with other IT hardware final assembly takes part in China but only after a long and intricate supply chain extending across the globe. Micro-chips come from Germany and Korea, Wi-Fi chips come from the USA and the touch screen module from Taiwan.

It comes to little surprise that the smallest part of Apple’s iPhone costs are in China. Labor entering the assembly is estimated at around 7% of total production cost while a dozen IC chips account for about 66% of total cost. In other words, much of the value-added is captured at the beginning and end of the process, i.e. in the R&D and branding.

Now that raising wages of assembly workers seems inevitable and in spite of the low value of labour costs some contract manufacturers are planning to move away from the Shenzhen area to the interior of the country. This process of delocalisation has a historical twist: Mao had initiated a similar delocalisation (dubbed “Third Front“) in the 1960s. At the time the rationale for retreating to the hinterland was to preserve the Chinese industrial base from… a nuclear attack.