Apple expected to achieve manufacturing margins of 70% with iPhone 4S

Posted:
in iPhone edited January 2014
Apple's margins are predicted to grow with this Friday's launch of the iPhone 4S, with manufacturing margins north of 70 percent for the handset.



Analyst Chris Whitmore with Deutsche Bank believes Apple achieves a bill-of-materials cost of $170 for the 16GB iPhone 4S, and $220 for the 32GB model. For the new 8GB iPhone 4, he thinks Apple's materials cost is about $140.



"This suggests manufacturing margins on the iPhone 4S are 71-73% (vs. ~38% for iPod touch) and should support attractive corporate margins for AAPL for multiple quarters," Whitmore wrote in a note to investors on Monday.



Apple also achieves a greater dollar subsidy from its carrier partners for iPhone purchases. The 16GB iPhone 4S subsidy is estimated to be $450, while most competing devices are estimated to garner less than $350.



Those subsidies allow Apple to reach a $199 price for the 16GB iPhone 4S with a new two-year service contract. That's in line with competing 3G devices, and about $60 less expensive than 4G phones like the Samsung Galaxy S II ($229 with contract), Droid Bionic ($299) and HTC Thunderbolt ($249).



"We expect customers who do the math to opt for the iPhone," he said of the price of the iPhone 4S, along with monthly service fees. "In addition, those who don't do the math will likely reach for the lower upfront acquisition cost of the 4S compared vs. these Droids."







Preorders for the iPhone 4S began last Friday, with carrier AT&T announcing that day that it sold 200,000 handsets in the first 12 hours. That makes it the most successful iPhone launch ever for the carrier, which is the second largest in terms of subscribers in the U.S.



The initial iPhone 4S stock was quickly depleted by early Saturday morning. Customers who now order Apple's next smartphone are now quoted an estimated shipping time of one to two weeks.



Whitmore believes the iPhone 4S will keep Apple the "smartphone gold standard," and will allow it to keep the largest share of smartphone sales versus other hardware vendors. Deutsche Bank has reiterated its "buy" rating for AAPL stock, along with a price target of $530.
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Comments

  • saareksaarek Posts: 974member
    Wow, I know Apple tend to make around 30-35% margin usually, but 70%....... Does make me feel that Apple just shafted me on my £499 aquisition for a 16gb iPhone 4S. \



    Oh well, as only Apple makes the iPhone and that's the platform I want I guess I should not complain too much I am afterall paying for it.
  • digitalclipsdigitalclips Posts: 15,204member
    All good for Apple's stock ... Oh but that never seems to reflect reality does it?
  • kiweekiwee Posts: 102member
    I also feel they charge to much for the device. Average selling price of the iPhone is north of 600$ if I'm not mistaken.



    Say it costs Apple 200$ to get it from nothing, to a customer. Thats 400$ profit on a 600$ device. They are making gold. Simple as that.

    But the price is set for what people pay. If they feel that the price is keeping people away, they have ALOT of margin to bite from.



    It's not Starbucks fault a cup of coffee is 5 dollars. It's yours.
  • conradjoeconradjoe Posts: 1,887member
    Quote:
    Originally Posted by AppleInsider View Post




    "We expect customers who do the math to opt for the iPhone," he said of the price of the iPhone 4S, along with monthly service fees. "In addition, those who don't do the math will likely reach for the lower upfront acquisition cost of the 4S compared vs. these Droids."






    So Apple is going for the cheapskate market? Will that have any impact on app sales?
  • drjones69drjones69 Posts: 2member
    To use an analogy often seen in pharmaceuticals - the second one costs $200 to make, the first one, with research, prototypes, testing and development most likely costs several orders of magnitude more :-)



    Don't get me wrong, I'm sure Apple's making a fine profit on every single unit sold, but to say they make $400 out of a $600 sales price is ignoring all the other costs of bringing a product to market - personally I'd really to like to see one of the other manufactures experience a similar demand for a single product, I suspect it'd highlight just what a good job Mr Cook did of supply chain management way before he was CEO ;-)



    Regards,

    Ryan
  • ssquirrelssquirrel Posts: 1,196member
    Quote:
    Originally Posted by ConradJoe View Post


    So Apple is going for the cheapskate market? Will that have any impact on app sales?



    No the cheapskate market is the android app store where developers make a lot less money.
  • conradjoeconradjoe Posts: 1,887member
    Quote:
    Originally Posted by kiwee View Post


    It's not Starbucks fault a cup of coffee is 5 dollars. It's yours.



    Fault? Why is it a matter of fault?



    *$s uses marketing to achieve perceived value, and consumers buy their products and are happy with them.



    So does Apple.



    I don't quite understand how fault enters into it.



    (And BTW, I don't buy coffee from *$s, because I think it is mediocre.)
  • conradjoeconradjoe Posts: 1,887member
    Quote:
    Originally Posted by SSquirrel View Post


    No the cheapskate market is the android app store where developers make a lot less money.



    Not anymore, at least according to AI's quote:



    "In addition, those who don't do the math will likely reach for the lower upfront acquisition cost of the 4S compared vs. these Droids."



    The cheapskates will now reach for the iPhone instead of these Droids, according to the quote. Hell, they give away iPhones for free. If you want a Droid for free, you need to buy one at full price first - BOGO. The iPhone is positioned to be the cell phone choice of the ultimate cheapskate, the cheapskate who wants a smartphone for free.



    Will that have any impact on the app store?
  • mjtomlinmjtomlin Posts: 1,544member
    Quote:
    Originally Posted by drjones69 View Post


    To use an analogy often seen in pharmaceuticals - the second one costs $200 to make, the first one, with research, prototypes, testing and development most likely costs several orders of magnitude more :-)



    Don't get me wrong, I'm sure Apple's making a fine profit on every single unit sold, but to say they make $400 out of a $600 sales price is ignoring all the other costs of bringing a product to market - personally I'd really to like to see one of the other manufactures experience a similar demand for a single product, I suspect it'd highlight just what a good job Mr Cook did of supply chain management way before he was CEO ;-)



    Regards,

    Ryan



    Completely agree. Apple isn't just paying to have their products assembled. They do a lot of "behind" the scenes work, including developing their own OS, not too mention their own SoC, develop their own touch screen tech, batteries, and work directly with component manufacturers to ensure the highest quality parts. As far as I'm concerned Apple's products are worth it.



    Research, developing, and engineering aren't nominal costs... They are the difference between finely crafted products and pieces of crap.
  • linguistlinguist Posts: 9member
    Given that these profits are achieved at the cost of insanely inhuman working conditions for the Chinese who actually fabricate the phones, and that Apple has obscene amounts of cash on hand with which they could actually do something about unemployment in the US tech industry, this is just the reason I'm reluctant to buy new Apple products. It's true that everyone else does the same thing, but Apple could be using their leverage in positive ways, not just to make more money (and as an Apple stockholder, I have an interest in the money they make...). Remember when Jobs said he hoped Apple would never lose its soul? They have.
  • mdriftmeyermdriftmeyer Posts: 6,813member
    Quote:
    Originally Posted by ConradJoe View Post


    So Apple is going for the cheapskate market? Will that have any impact on app sales?



    Having the iPhone 4 8GB at $99 with contract is going to hose a large chunk of the Android Market.
  • mdriftmeyermdriftmeyer Posts: 6,813member
    Quote:
    Originally Posted by Linguist View Post


    Given that these profits are achieved at the cost of insanely inhuman working conditions for the Chinese who actually fabricate the phones, and that Apple has obscene amounts of cash on hand with which they could actually do something about unemployment in the US tech industry, this is just the reason I'm reluctant to buy new Apple products. It's true that everyone else does the same thing, but Apple could be using their leverage in positive ways, not just to make more money (and as an Apple stockholder, I have an interest in the money they make...). Remember when Jobs said he hoped Apple would never lose its soul? They have.



    You don't seem to complain about HTC, Samsung, and more?
  • archipellagoarchipellago Posts: 333member
    Quote:
    Originally Posted by mdriftmeyer View Post


    Having the iPhone 4 8GB at $99 with contract is going to hose a large chunk of the Android Market.



    well 3GS has been free on a £21 a month tariff in the UK for months and the 4 was always free on £35 tariffs and that hasn't stopped Android growing exponentially over here
  • kiweekiwee Posts: 102member
    Quote:
    Originally Posted by ConradJoe View Post


    Fault? Why is it a matter of fault?



    *$s uses marketing to achieve perceived value, and consumers buy their products and are happy with them.



    So does Apple.



    I don't quite understand how fault enters into it.



    (And BTW, I don't buy coffee from *$s, because I think it is mediocre.)



    I used the term Fault because people tend to blame the business for high prices when it's in fact the consumer that sets the price tag. Not the other way around.



    Quote:
    Originally Posted by drjones69 View Post


    To use an analogy often seen in pharmaceuticals - the second one costs $200 to make, the first one, with research, prototypes, testing and development most likely costs several orders of magnitude more :-)



    Don't get me wrong, I'm sure Apple's making a fine profit on every single unit sold, but to say they make $400 out of a $600 sales price is ignoring all the other costs of bringing a product to market - personally I'd really to like to see one of the other manufactures experience a similar demand for a single product, I suspect it'd highlight just what a good job Mr Cook did of supply chain management way before he was CEO ;-)



    Regards,

    Ryan



    I appreciate development cost of course. However, that cost will most likely be swallowed up by the first million or so sold.

    If I would guess, I would say the development cost of the iPhone 4S is already covered. On the pre-orders alone. Now it's money making time.
  • galbigalbi Posts: 968member
    Quote:
    Originally Posted by mdriftmeyer View Post


    You don't seem to complain about HTC, Samsung, and more?



    Because they are not American.
  • linkgx1linkgx1 Posts: 742member
    Quote:
    Originally Posted by Linguist View Post


    Given that these profits are achieved at the cost of insanely inhuman working conditions for the Chinese who actually fabricate the phones, and that Apple has obscene amounts of cash on hand with which they could actually do something about unemployment in the US tech industry, this is just the reason I'm reluctant to buy new Apple products. It's true that everyone else does the same thing, but Apple could be using their leverage in positive ways, not just to make more money (and as an Apple stockholder, I have an interest in the money they make...). Remember when Jobs said he hoped Apple would never lose its soul? They have.



    Steve Jobs just recently lost his soul.























    ......sorry that was too soon but I couldn't resist!
  • kiweekiwee Posts: 102member
    One more thing.



    Even mentioning the price of the iPhone as 199$ or 299$ is completely irrelevant as that has Nothing to do with what you pay.

    Cost of ownership is the only number usable when comparing models.
  • conradjoeconradjoe Posts: 1,887member
    Quote:
    Originally Posted by kiwee View Post


    One more thing.



    Even mentioning the price of the iPhone as 199$ or 299$ is completely irrelevant as that has Nothing to do with what you pay.

    Cost of ownership is the only number usable when comparing models.





    It is far from irrelevant. For many people, a cash flow analysis is supremely important.
  • linkgx1linkgx1 Posts: 742member
    Quote:
    Originally Posted by kiwee View Post


    One more thing.



    Even mentioning the price of the iPhone as 199$ or 299$ is completely irrelevant as that has Nothing to do with what you pay.

    Cost of ownership is the only number usable when comparing models.



    I'm not sure what you're comparing it to? What do you mean by cost of ownership? The amount payed by the end of the contract?
  • jj.yuanjj.yuan Posts: 212member
    I am sure Apple will invest a lot in developing new solutions, features, etc.
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