“Each iPhone sold will generate nearly a 50 percent gross margin for Apple Inc. and partner Cingular Wireless, giving the companies a hefty profit, as well as plenty of room for future price cuts, according to research firm iSuppli,” Katie Marsal reports for AppleInsider.
Marsal reports, “Based on a preliminary functional Bill of Materials (BoM) estimate, the firm calculates that the 4Gbyte version of the Apple iPhone will carry a $229.85 materials and manufacturing cost and a $245.83 total expense, yielding a 49.3 percent margin on each unit sold at the $499 retail price.”
Marsal reports, “Meanwhile, it said the 8GByte model will sport a $264.85 materials cost and a $280.83 total expense, amounting to a 46.9 percent margin at the $599 retail price. ‘While iSuppli has a high degree of confidence in its conclusions, these figures are considered preliminary until we perform an actual physical teardown and analysis of the iPhone,’ the firm said in a report released Thursday.”
Marsal reports, “The firm added that such a strong hardware profit is par for Apple’s course, with the company having achieved similar margins of 45 percent and more in products including the iMac and iPod nano. But with extensive competition in the music-phone market, it may need to cut into those margins to reduce pricing in the future. ‘With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward,’ said Jagdish Rebello, PhD, director and principal analyst with iSuppli.”
Marsal includes a chart of the component costs breakdown in the full article here.
The figures are for component costs and do not include costs for, among other things, iPhone marketing.
It’s amazing that these people can claim the cost of components based on what little info was released.
Maybe I should ask them to predict the next lotto numbers.
What you just gotta love is that this is all based on a lot of guesswork. Trying to break into a new market by limiting yourself to one carrier AND charging a 50% margin? I don’t think so….
iSuppli is notoriously an
The figures are for component costs and do not include costs for, among other things, iPhone marketing. nor 2½ years of research, design, and development.
its amazing that NONE of these so called “tech analysts” even think about development. it obviously costs MILLIONS if not BILLIONS to develop the over 200 patents involved with this phone. plus, they are not including shipping, labor, and retail costs of this phone and other products. ridiculous.
I don’t feel Apple is not doing anyone a favor by locking you into their carrier of choice. I’d love to buy an iphone, but i should be able to choose my own carrier.
I do love my imac, I love my iPod, I love the software, I can’t see myself ever going back to Windows, but I do find apple a little too controlling on how you use thier devices and software.
If it’s even remotely true, it’s crazy that they couldn’t include a 3G chipset. But as was stated, it’s nothing more than mere guesswork.
Come on guys, they’re calculating the Unit Contribution for the phone. Fixed Costs (like marketing and R&D) don’t factor into that whatsoever. You don’t need those until you calculate the Break-even Units Sold.
This doesn’t mean that the analysts are idiots.
I predict that I will predict when to predict all predictions that claim to predict what others’ can’t predict because of predictions of global warming and other general malaise and oh-by-the-way I’m a writer and it was predicted by my boss that I’d better write something about the iPhone . . . so I predict that I’ll still have a job tomorrow and I also totally predict that if my predictions in this article are predictably daft, well then, like, ya know, in six months no one’ll remember.
Snap.
Sincerely,
Katie Marsal
Oh, by the way I paid cream of Sum Jung Gai to say that for me.
Cool.
Huggles,
Katie
“I don’t feel Apple is not doing anyone a favor by locking you into their carrier of choice. I’d love to buy an iphone, but i should be able to choose my own carrier.
I do love my imac, I love my iPod, I love the software, I can’t see myself ever going back to Windows, but I do find apple a little too controlling on how you use thier devices and software.”
Troy, I’d be willing to bet that they had to cave to Cingular on that. Besides, as I understand it, they developed the Visual Voicemail technology with Cingular. That feature, which is awesome, wouldn’t be available through any other carrier.
And for those of you keeping track at home, so far that’s about $4.99 billion cash sales excluding any/if any provider subsidies, with a 50% margin then that comes to about 2.5 billion in cash [on 10 million phones] excluding advertising costs and other outstanding expenses. Now we’re starting to see some real estimated numbers (is that an oxymoron?) Not too shabby so far…
This jut proves that the price is going to come down relatively soon after the release. Apple will squeeze money out of the kind of people who will take out a second mortgage to pay for consumer goods and the people who don’t have to ask how much things cost. They will pay for R&D and marketing. After a few months the margins will have to drop if they want millions and millions of sales.
You can’t just add up the cost of the parts and say Apple is making about “50% margin.” in addition to marketing, significant cost has already been expended in R&D (and R&D costs will continue). Apple products sold today pay for the development of future Apple products. Apple (these days) spends its R&D dollars frugally, but it costs a lot of money to do “end-to-end” products. At least Apple doesn’t have to pay a licensing fee to Microsoft.
As I explained, ken1w, you DO have to just add up the cost of the parts when computing gross margin. Fixed costs are not factored into the contribution margin. They are fixed costs, not per-unit costs. And you don’t factor SUNK costs (like all of the R&D that’s already been paid for) into any of this.
Revisit in June and after the introduction of additional versions of the device for additional markets.