50% profit margin on the iPhone?

[Queasy]

Yikes

How much will the iPhone really cost Apple to make, and how much of a premium on top of that will consumers be paying for it? A preliminary analysis by iSuppli of Apple's recently-announced iPhone shows that, based off of the estimated cost of materials, Apple has priced the iPhone with over a 50 percent profit margin on both models.

iSuppli estimates that the hardware Bill of Materials (BoM) for the 4GB version of the iPhone will be $229.85, and with the addition of nonhardware costs (such as royalties to EDGE, an operating system, and various software), comes out to a total price of $245.83. With a projected retail price of $499 from Apple and Cingular, that puts the 4GB iPhone at a 50.7 percent profit margin. The 8GB model's profit margin is slightly higher?with an estimated hardware BoM of $264.85, total cost of $280.83, and retail price of $599, the 8GB iPhone will have roughly a 53.1 percent profit margin. iSuppli says that the company has a "high degree of confidence" in these figures, but that until an actual teardown of the iPhone takes place, the numbers are considered preliminary.

Can Apple survive in the cutthroat mobile phone world with such high margins? The company has succeeded in the past in charging similar margins on the iPod nano and the iMac (45 percent, according to iSuppli), so the iPhone's apparently hefty margins come as no surprise. However, the mobile phone market has so many players and so much competition (about 835 new models are expected to come out this year, with at least 14 models that have features similar to the iPhone) that Apple may have a hard time thriving in such a vastly different market.

iSuppli Director and principal analyst Jagdish Rebello said that "With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward." The fierce competition is only exacerbated by service providers who are always pushing deals on handsets as a part of new contracts. Apple's multiyear tie-in with Cingular will limit Apple's reach in the market too, since there are still entire states that have yet to be blessed with Cingular coverage.

 

[Falloutboy]

I'm sure there is a lot of R&D that went into it. also I'm sure there thinking they'll get the early adopters first for the higher cost then version 2 will be cheaper

 

[preslove]

Considering how few of them will actually be sold, a high margin is its only chance of success.

One question I have, though, is wouldn't apple gross more than $500 on each phone sold because of the 2 year contract requirement? I thought the entire point of bundling a phone with a 2 year contract was for the service provider to sell the phone below their cost.

 

[Lonyo]

Ah, iSuppli, the company who says Xbox 360 HDD's and optical drives cost MS more than they cost us, the end user. (iSuppli figures vs Newegg prices)
I really have faith in them.

 

[James Bond]

Originally posted by: preslove
Considering how few of them will actually be sold, a high margin is its only chance of success.

One question I have, though, is wouldn't apple gross more than $500 on each phone sold because of the 2 year contract requirement? I thought the entire point of bundling a phone with a 2 year contract was for the service provider to sell the phone below their cost.

But why does the 2 year contract affect Apple, isn't that something that will only have an affect on Cingular?

 

[Queasy]

Originally posted by: Tizyler

Originally posted by: preslove
Considering how few of them will actually be sold, a high margin is its only chance of success.

One question I have, though, is wouldn't apple gross more than $500 on each phone sold because of the 2 year contract requirement? I thought the entire point of bundling a phone with a 2 year contract was for the service provider to sell the phone below their cost.

But why does the 2 year contract affect Apple, isn't that something that will only have an affect on Cingular?

Should be. I'm sure that Cingular is paying Apple some kind of money to be the exclusive iPhone carrier for a while though. That probably comes out of the 2 year contract.

 

[James Bond]

Originally posted by: Queasy

Originally posted by: Tizyler

Originally posted by: preslove
Considering how few of them will actually be sold, a high margin is its only chance of success.

One question I have, though, is wouldn't apple gross more than $500 on each phone sold because of the 2 year contract requirement? I thought the entire point of bundling a phone with a 2 year contract was for the service provider to sell the phone below their cost.

But why does the 2 year contract affect Apple, isn't that something that will only have an affect on Cingular?

Should be. I'm sure that Cingular is paying Apple some kind of money to be the exclusive iPhone carrier for a while though. That probably comes out of the 2 year contract.

Yeah, that makes sense. I wonder how much money Apple is getting from Cingular for the exclusiveness... It must be a ton, considering how much money they could make if they opened up to other carriers...

I really hope iPhone comes to T-Mobile after a while.

 

[preslove]

Originally posted by: Tizyler

Originally posted by: preslove
Considering how few of them will actually be sold, a high margin is its only chance of success.

One question I have, though, is wouldn't apple gross more than $500 on each phone sold because of the 2 year contract requirement? I thought the entire point of bundling a phone with a 2 year contract was for the service provider to sell the phone below their cost.

But why does the 2 year contract affect Apple, isn't that something that will only have an affect on Cingular?

Normally, a phone manufacturer sells a smart phone for, say, $500 bucks unlocked. Cell service providers will sell that phone for ~$300, losing $200 (or a little less, considering bulk pricing) immediately, but making it up in the first few months of the contract.

I know Cingular helped ut with R&D, but you'd think Apple would be getting more than R&D money for tying the iPhone to a two year contract with America's worst Cell service provider.

 

[goog40]

Originally posted by: Lonyo
Ah, iSuppli, the company who says Xbox 360 HDD's and optical drives cost MS more than they cost us, the end user. (iSuppli figures vs Newegg prices)
I really have faith in them.

Well I don't see any reason not to believe that MS is losing money on the HD-DVD drives right now.

 

[Lonyo]

Originally posted by: goog40

Originally posted by: Lonyo
Ah, iSuppli, the company who says Xbox 360 HDD's and optical drives cost MS more than they cost us, the end user. (iSuppli figures vs Newegg prices)
I really have faith in them.

Well I don't see any reason not to believe that MS is losing money on the HD-DVD drives right now.

You misunderstand.
Their price breakdown for the Xbox 360 (the regular one, not the HD-DVD add on), said that the regular DVD drive in the 360 costs more than a regular DVD-ROM drive from Newegg.

 

[MercenaryForHire]

Originally posted by: Lonyo

Originally posted by: goog40

Originally posted by: Lonyo
Ah, iSuppli, the company who says Xbox 360 HDD's and optical drives cost MS more than they cost us, the end user. (iSuppli figures vs Newegg prices)
I really have faith in them.

Well I don't see any reason not to believe that MS is losing money on the HD-DVD drives right now.

You misunderstand.
Their price breakdown for the Xbox 360 (the regular one, not the HD-DVD add on), said that the regular DVD drive in the 360 costs more than a regular DVD-ROM drive from Newegg.

Custom firmware perhaps? 😕

- M4H

 

[JS80]

1) R&D, G&A, etc.
2) Prices for goods should not be based on profit margin, it is based on the maximum price you can charge to generate the highest profit.

 

[Koing]

Heaven forbid a company makes a profit!

If people want to buy it at xxx price let them! They have alternatives and they can buy all the parts and make it themselves...😛

A person is a f00l if he thinks the cost fo selling an item is just it's raw parts put together.

Koing

 

[ryan256]

To me the iPhone is just another iProduct.