Teardown: IHS finds Nokia’s ultra-low-cost handsets are profitable at $20

July 01, 2013 // By Julien Happich
With its ultra-low-cost handset (ULCH) model 105, Nokia has shown how it is possible to sell a mobile phone at a price of $20.00 and still make a profit, by sticking to a limited set of features and employing a highly integrated design.

The Nokia 105 yields a margin of less than 30%, strictly based on hardware and manufacturing costs and retail pricing, according to a physical dissection of the cellphone conducted by the Teardown Analysis Service at information and analytics provider IHS.

The Nokia 105 carries a bill of materials (BOM) of $13.50. When the manufacturing cost is added in, the cost rises to $14.20. At a suggested retail price of $20.00—a new low for a ULCH cellphone—this gives the 105 an implied hardware and manufacturing margin of 29%, which suggests modest a profit margin for the Nokia 105.

The table below presents a summary of the IHS teardown of the Nokia 105. This teardown assessment is preliminary in nature, accounts only for hardware and manufacturing costs, and does not include additional expenses such as software, licensing, royalties or other expenditures.

“About eight years ago, the IHS Teardown Analysis Team dissected the iconic Nokia 1110 cellphone, a hugely popular device that defined the ULCH segment and had very similar features as the new 105,” said Wing Lam, principal analyst for IHS. “We determined that the 1110's BOM was nearly three times larger than the 105’s—even when accounting for the black-and-white display used on the old model. 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. The 105 allows Nokia to participate in the ULCH market targeting specific regions and consumers.”

Targeting the ultra-low-end allows Nokia to approach the 105’s design in a manner that is the polar opposite of the strategy commonly used in the mid to high-end cellphone market, i.e., adding features to products each year, while maintaining the same BOM costs and pricing.

The no-frills phone

The 105 extends Nokia’s 1100 line, targeting emerging markets including Africa, India, and Latin America. The phone supports