As mobile networks kill off phone subsidies, users might now begin to appreciate just how much their new smartphone really costs. It's an even bigger problem in the developing world, where relatively few have the cash to buy even a mid-range phone like the Moto G. Google attempted to remedy the problem with Android One, but the first generation of "affordable" devices were far too expensive. That's why the company is pledging to get the cost of a smartphone down to just $50 -- a price that, right now, seems impossible to achieve. If Google can do it, however, it'll be able to connect countless people in countries like India, the Philippines and Turkey. Fifty dollars isn't a lot of money to put together a device, so what sort of phone can you get for the money?
"If you had asked me this a year ago, I would have said that it was impossible." Wayne Lam is the principal telecoms analyst for IHS, a market intelligence firm that looks at the technology market. As part of the experiment, he offered to cook up a hypothetical device that, if someone built it today, could probably be mass-produced for under $50. He worked out that the upper limit for a bill of materials would be around $42, and worked backward to build out a spec list from there. It wasn't pretty, since "any time you put a constraint on the design, like a maximum price, you end up having to make compromises."
The most expensive individual component in your smartphone is probably the display, and a 5-inch-plus Quad HD panel alone can cost up to $100. Samsung makes its own screens and could only cut the price of the curved, 5.1-inch unit that sits atop the Galaxy S6 Edge down to a reported $85 (with the standard S6 display going for about $24 less). If that's a first-class ticket, then the $50 smartphone will probably be traveling in coach, or maybe freight -- or maybe just paddling to its destination in a coracle.
Lam suggested that the most likely display for our affordable smartphone would be a 4- to 4.5-inch FWVGA (854 x 480) panel. That's the same screen that you would have found on Sony's Xperia M from 2013, spec nerds. According to Lam, the display would account for roughly 15 to 19 percent of the $42 bill of materials, which we work out to be about $7.98. If you wanted to push your luck, you could swap that out for a 4.7-inch HD display, although the cost would skyrocket to closer to 30 percent of the cost: $12.60.
The trick to designing a low-cost smartphone, according to MediaTek's VP of corporate marketing Siegmund Redl, is making use of a reference design. That's when a company (in this case Google) lays out a blueprint for what a cheap device could, or should, be and leaves the manufacturer with the task of building it. As he explains: "The manufacturer no longer needs to worry about the basic underlying technology, but can solely concentrate on the industrial and feature-add design." If you've ever wandered into a Best Buy and wondered what the difference is between all of those $150 smartphones, the likelihood is: not much. That's because the majority of them are based on the same reference design, albeit with a few tweaks depending on the generosity (or not) of the company in question.
The most important thing a smartphone needs is the tiny portable computer that resides beneath the steel, plastic and glass. Most high-end phones come with a name-brand chip from an outfit like Qualcomm or NVIDIA, with the most prominent right now being the Snapdragon 810. That's the chip that you'll find inside the HTC One M9, OnePlus 2 and LG G Flex2, among others, and it costs a pretty penny.
You're not going to find one of those inside your $50 smartphone, which is likely to run on a chip from a second- or third-tier firm like MediaTek or Allwinner. It's not as if it's just a CPU, either, since these systems-on-a-chip combine everything that you'd need to run a phone. Let's take MediaTek's MT6582 as an example, since it was the basis for the first generation of Android One devices when they launched last year.
This unit packs in a 1.3GHz quad-core ARM Cortex-A7 CPU, Mali 400 graphics, a HSPA+ modem, WiFi, Bluetooth, GPS and FM radio. This same product is also capable of supporting 8-megapixel cameras and has enough power to push pictures for a 1,280 x 720 HD display while recording full HD video. If that all sounds a bit too jargon-y for you, then the short version is this: It may be cheap, but it's no slouch.
The bottom end of the chip-manufacturing world is highly competitive, and no company would go on the record to reveal how much they'd charge for a comparable system. We did, however, speak to one source familiar with the matter who revealed that they'd expect to pay around $10 for this sort of budget system. It's important to note that this figure doesn't include either storage or RAM, two of the more expensive individual components that you'll find inside a smartphone.
RAM and storage: $10
Flash-based memory is one of the most competitive markets in the smartphone-manufacturing world, and nobody was prepared to talk to us, even off the record, about the costs involved. That's why we're forced to rely upon IHS' calculations for how much it costs to produce the RAM and storage inside Samsung's Galaxy S6 Edge. According to the firm, 3GB of LPDDR4 SDRAM and 64GB of eMMC NAND storage would set you back $27.50 and $25, respectively.
By comparison, most of the first-generation Android One devices shipped with 1GB RAM and 4GB storage. If we assume everything else is equal, we can work out that 1GB of RAM would cost roughly $9, with 4GB storage being priced at about $1.50. From this, we can be fairly sure that these two components together would probably round out to $10. It also goes some way to explaining why low-end smartphones still ship with microSD card slots while their higher-end rivals sacrifice them in exchange for more onboard capacity.
Battery and cameras $5
What are the other two things you always look for when buying a smartphone? The battery and camera, and we went back to Lam to ask what he expected these two components to go for. In his calculations, a 1,600mAh unit would come to roughly 5 percent of the overall price, or $2.10. On the imaging front, a 5-megapixel primary camera and a 2-megapixel forward-facing unit would take up a similar share of the bill, bringing the cost for both parts to around $5.
The rest: $9
If we're working from the idea that the materials can cost no more than $42, we're left with $9 to turn these components into a smartphone. That's barely enough to get a satisfying meal at McDonald's, let alone be able to source useful sensors, audio equipment, antennas and housing required to build a device. You could borrow some cash from the leftover $8, of course, but from that budget you've got to cram out packaging, marketing, transportation, logistics and maybe have a few cents left over to pay your employees. On the upside, Google reportedly coughed up $1 billion to help subsidize the first generation of Android One devices -- but that couldn't have lasted long in a country like India, with a population of 1.2 billion people.
If this thought experiment has revealed anything, it's that there's no such thing as a profit in the Android world any more. You know it's true when a company as notable as HTC is considered to be effectively worthless and LG makes just 1.2 cents in profit for every device it sells. Samsung may continue to earn a profit, but it's an exception rather than the rule, and one that may not hold true forever.
Profit, however, has long since ceased to be the goal for the majority of these companies, and instead it's all about scale. It's the idea that if you flog enough devices cheaply enough, you'll have a broad customer base that will come back to you in two or three years' time. Hopefully, then, when device prices are cheaper and some of your weaker rivals have collapsed under their own weight -- maybe then you can squeeze a little cream from the top of the milk. Of course, it's a false hope, since "price-conscious" buyers will simply move on to the next big thing, and you'll be left fighting off angry letters from the bank.
These manufacturers, of course, will break their backs in the hope of bringing smartphones to India, but they won't benefit too much from it. Google, however, can sit back and relax, writing a check every now and again while it waits for all of these new users to roll in.
[Image Credits: David Paul Morris / Bloomberg via Getty Images (Sundar Pichai); Stephen Lam / Getty Images (Android One phones); iFixit (Samsung Galaxy S6 Teardown); Getty (Hardware icons); Tsering Topgyal/AP Photo (India crowd)]