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Apple's iPhone gross margins estimated near 60 percent

post #1 of 37
Thread Starter 
A new report suggests Apple turns nearly a 60 percent gross profit on the sale of each iPhone, and the device allows the company to lower prices on other products without impacting its bottom line.

Meanwhile, another report released Wednesday says there is a "surprising" move by consumers toward the higher-end iPhone 3GS at $199 and $299, versus the $99 iPhone 3G.

Financial Alchemist

Analyst Turley Muller, on his blog Financial Alchemist, said that with the carrier subsidies, Apple earns well beyond what it spends to build each iPhone. All three models of the phone earn more than 58 percent margins, with the 32GB iPhone 3GS carrying the most profitable 59.6 percent margin.

"Going forward Apple will recognize higher iPhone revenue carrying a higher gross margin," Muller writes. "As iPhone revenue as a percentage or share of total revenue increases, the impact of the higher iPhone (gross margin) on overall (gross margin) will intensify. This will assuage margin pressures Apple faces in other areas."

Muller goes on to suggest that the high profitability of the iPhone has allowed Apple to lower prices on its MacBook Pro lineup without having any effect on the company's earnings.

"As we just witnessed, Apple cut prices on its Mac line-up, and there hasn't appeared to be any noticeable impact on overall (gross margins)," he writes. "Going forward, Apple is guiding Q4 GM to 34%, suggesting GM in the 36%-38% range, thus there doesn't appear that these price reductions will have a dramatic impact on its overall GM."



Fortune Brainstorm Tech believes people should put stock in what Muller says. As the blog points out, he has come within pennies of predicting Apple's earnings per share during recent quarters, while the Wall Street consensus was off by dimes and quarters.

Kaufman Bros.

And in a report released by Kaufman Bros. Wednesday says that the iPhone 3GS, particularly the $299 32GB model, is doing better than expected.

"There were widespread shortages of nearly all 3GS models through the first weeks of July, due to strong preorders and strong demand," the report reads.



Kaufman Bros. had assumed that more customers would lean toward the affordable $99 iPhone 3G model. The firm expects Apple to sell 6.8 million iPhones in the third financial quarter, a 31 percent year over year increase.

But analyst Shaw Wu, who compiled the report, admitted those numbers could be very conservative, as it is a "tough comparison." The firm has raised its target price for Apple to $184 and recommends that investors buy. Kaufman Bros. joins a number of other Wall Street analysts who are high on AAPL stock.

"We continue to believe Apple is positioned to outperform in this tough macroeconomic environment with its defensible strategic and structural advantages and its vertically integrated model," the report reads. "We see several catalysts in the quarters ahead including Snow Leopard, new iPods, new desktop Macs, and a potential new form factor."
post #2 of 37
As expected, at least by me, Apple continues to make good margins on all of it's products and the iPhone is just their star at the moment, of course with good numbers usually comes the Apple stock slide!
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post #3 of 37
Quote:
Originally Posted by saarek View Post

As expected, at least by me, Apple continues to make good margins on all of it's products and the iPhone is just their star at the moment, of course with good numbers usually comes the Apple stock slide!



The big growth is over. Now we get evil apple and all kinds of nice products that. We will still use
post #4 of 37
Quote:
Originally Posted by al_bundy View Post

The big growth is over. Now we get evil apple and all kinds of nice products that. We will still use

i totally. agree man like yeah
post #5 of 37
Not so sure if Apple is a good investment anymore. Used to think so. The analysts are often right, except when they are wrong and it really matters to your pocketbook.

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.
post #6 of 37
If this is correct, Apple is making up to $400 pure profit on a single phone handset.

This should be contrasted with Acer making up to $25 on a single netbook.

Wow!

C.
post #7 of 37
Quote:
Originally Posted by L. Angry View Post

Not so sure if Apple is a good investment anymore. Used to think so. The analysts are often right, except when they are wrong and it really matters to your pocketbook.

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.

Alot of that will likely end when Apples exclusivity with AT&T ends, and in the case of google latitude, when the iPhone gets true multitasking. However, I would guess that the majority of the population buying iPhones aren't even aware of those issues anyway. None of those apps will pull customers away from the iPhone.
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post #8 of 37
You have to look at the bigger picture. The iPhone has made it easy to develop complex and easy to use features. People are buying and using mobile applications in numbers that no other mobile platform has ever achieved.

The reason AT&T has limited Sling Box and Google Voice on the iPhone is because people will actually use them frequently and in large numbers. People are not using Sling Box on the Blackberry frequently and in large numbers.

On top of that there still is the option to get web apps onto the iPhone. Apple uses HTML5/CSS/javascript and has set up an entire API platform that allows web apps to operate and feel much like native apps. There is nothing Apple or AT&T can do to censor the content or functionality of web apps.

For Google Latitude, I believe Apple will incorporate that into the native Maps app. So there is no need for a native app from Google.


Quote:
Originally Posted by L. Angry View Post

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.
post #9 of 37
Either that or a lot of people couldn't care less, just like all the other things the iPhone has lacked over the last few years that were supposed to doom it to failure.

Quote:
Originally Posted by L. Angry View Post

Not so sure if Apple is a good investment anymore. Used to think so. The analysts are often right, except when they are wrong and it really matters to your pocketbook.

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.
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post #10 of 37
Quote:
Originally Posted by AppleInsider View Post

Meanwhile, another report released Wednesday says there is a "surprising" move by consumers toward the higher-end iPhone 3GS at $199 and $299, versus the $99 iPhone 3G.

I am not that surprised by this - 100 more dollars initial layout is not that important when you take tco into account. The $ 99.- iphone is important more as a marketing ploy. When you are buying an iphone to last two, possibly three years and you have the choice between 8 and 16gb $100 is a small price to pay. You may not ever use more than 8gb but there is the big 'what if' insecurity question, and so people opt for the 16 gb, just in case. People who buy the 32 gb pretty much know what they are doing and 1 6 gb just won't be enough.
post #11 of 37
Maybe the pre, but blackberry is a sinking ship along with android. Winmo might have a future with future versions
post #12 of 37
Of course, the cost to BUILD a device isn't the only cost. There's also hardware R&D, software R&D, marketing/advertising/stores, customer support, etc.--all necessary and massive costs. (In other words, Apple's not just pocketing ALL that money after the device is built.)
post #13 of 37
Quote:
Originally Posted by AppleInsider View Post

Kaufman Bros. had assumed that more customers would lean toward the affordable $99 iPhone 3G model.

Wow, you mean consumers aren't completely stupid? Do they really understand that an extra $100-$200 up-front is peanuts compared to the $100 per month that they'll be spending on a 2-3 year contract? That's astounding!
post #14 of 37
Quote:
Originally Posted by L. Angry View Post

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.

As a long time computer user (25 years), and developer (23 years) and proclaimed geek, I'd consider myself a fairly advanced and experienced user. I have never heard of any of those applications or even what they do. Well, I know what SlingBox is and does, and recently (from previous articles) learned of Google Voice. So I'm not so sure that these applications are going to be a huge requirement to the vast majority of users. Furthermore, since its inception the iPhone has lacked several so-called smart-phone features and yet people still flocked to it in record numbers.

Apple's rejection of any specific application (especially applications that duplicate other functionality or possible built-in future features) is not going to impact the sales of the iPhone. There are many features that I would love to see on the iPhone, even after its third version, but I wouldn't sacrifice all the other things that make it wonderful to use, just to use a phone that has any particular feature that I'd like to see on my iPhone.
Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.
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Disclaimer: The things I say are merely my own personal opinion and may or may not be based on facts. At certain points in any discussion, sarcasm may ensue.
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post #15 of 37
getting back on topic, why is only Apple getting these nice margins? the iphone is not that much more than other similar phones and cheaper than the high end blackberries.
post #16 of 37
I see nothing surprising in consumer preference for the new 3GS over the old 3G. Its new features (video, magnetometer, capacity, speed) add value, and frankly the initial purchase price is the least part of an iPhone's total cost of ownership. In any case the iPhone is a premium product whose buyers are typically less financially constrained than average.
post #17 of 37
Quote:
Originally Posted by al_bundy View Post

getting back on topic, why is only Apple getting these nice margins? the iphone is not that much more than other similar phones and cheaper than the high end blackberries.

For one thing, they are not managing supply chains for dozens of different
handset models, like some other companies.
post #18 of 37
kind of hard NOT to make money when you outsource the manufacturing to a border-line slave labor camp in China!


(I'm kidding )
post #19 of 37
delete.
post #20 of 37
Quote:
Originally Posted by Carniphage View Post

If this is correct, Apple is making up to $400 pure profit on a single phone handset.
C.

No, it's not 'pure profit.' Gross margin is just Revenue minus Cost of Goods Sold (or broadly, direct costs). You have to account for Selling, General, and Admin or "SG&A" (broadly, indirect costs) and on top of that, taxes, before you get to 'pure profit.'
post #21 of 37
Quote:
Originally Posted by paxman View Post

The $ 99.- iphone is important more as a marketing ploy.

Right on. It exists to give pause to those contemplating other $99 phones. When Apple runs out of these, the $99 phone will be gone (until, of course, this year's low-end 3GS gets to July 2010; then it will start up again).

It is, indeed, a very smart marketing ploy.
post #22 of 37
Quote:
Originally Posted by al_bundy View Post

getting back on topic, why is only Apple getting these nice margins? the iphone is not that much more than other similar phones and cheaper than the high end blackberries.

It's not only Apple. You really think Nokia's N97 is really worth anywhere near $700 to make? This is more about the phone industry in general and how there is no regulation. These unlocked prices for phones are ridiculous and is close to pure robbery. Computers wouldn't have a chance getting away with these margins. The truth is that the subsidized price of these phones should should be the unlocked price or close to it. I am surprised that no one has gone after the manufacturers and the telcos for this. And I'm surprised that no one on this forum has a problem with the manufacturers having these kind of margins. We may all be Apple fans but I would assume not at the expense of the money in your pocket.
post #23 of 37
I mean really folks just look at the prices on Touch which is practically the same device minus a handful of chips. Combine that with the likely very aggressive price breaks for ultra high volume orders and you end up with a device that costs pennys to produce.

Well not pennies but you get the idea. How many companies can place an order for advanced flash chips and tie up the suppliers entire production floor? This leads to heavy discounts that are probably more closely guarded at Apple than the Tablet. It is in a way genius that they have so many parts in common across multiple devices. Frankly Nokia doesn't have this good fortune nor the many other cell makers with their broad line of odd products.

Mind you these are estimates too. It wouldn't be to hard to argue for an even larger margin.


Dave
post #24 of 37
Quote:
Originally Posted by L. Angry View Post

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms

To who? Geeks and techies only care about those. And we are in the minority.

Don't get me wrong, as a geek and a techie I want those But I'll bet it won't make a whits difference to over 80% if not more of the current or potential iPhone customers.

Unfortunately

Because as I said, I want those apps too
post #25 of 37
Quote:
Originally Posted by quinney View Post

For one thing, they are not managing supply chains for dozens of different handset models, like some other companies.

So your saying it wouldn't be trivial to make a CDMA iPhone along with a GSM? Apple isn't just being stubborn and torturing CDMA users?

Say it isn't so....
post #26 of 37
Quote:
Originally Posted by str1f3 View Post

These unlocked prices for phones are ridiculous and is close to pure robbery.

True or False: The cost and profit of a phone is directly proportional to the sum total of the hardware required to build it.
post #27 of 37
Quote:
Originally Posted by chronster View Post

kind of hard NOT to make money when you outsource the manufacturing to a border-line slave labor camp in China!


(I'm kidding )

close to the sad truth
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post #28 of 37
Quote:
Originally Posted by DocNo42 View Post

True or False: The cost and profit of a phone is directly proportional to the sum total of the hardware required to build it.

no
AS apple sells tens of millions of iphone/touches all the original R/D and new product start up costs gets spread so thin that its near absolute zero ,
also the economies of scale demand lower and lower component prices
waste also reaches near zero cost. After the 3rd gen ipod touch and ipod-nano phones are released and they mature a bit total tele sales will hit over 200 million on a 8 or 9 phone line up/


dick tracey is alive and well
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post #29 of 37
Quote:
Originally Posted by al_bundy View Post

getting back on topic, why is only Apple getting these nice margins? the iphone is not that much more than other similar phones and cheaper than the high end blackberries.

Blackberry does get these kind of margins on its high end phones.
post #30 of 37
Quote:
Originally Posted by L. Angry View Post

After the shutdown of the Sling Box, Google Latitude, and now Google Voice Apps, I don't think the iPhone has as bright of a future as these analysts think. These Apps represent serious features that are going to become major attractions on other platforms because Apple continues to badly cripple the device. If Blackberry, Android, and Pre don't see this opportunity, they either aren't paying attention or don't get it. My guess is that they will and that they will cash in on it.

What is really, REALLY, annoying with comments like the above are self-absorbed, basement dwelling individuals that have way too much time on their hands to "play" with applications that frankly, most people could really care less about.

I'm a systems engineer, geek, power-user and I see more of these apps as a five-minute curiosity than anything else. Children like the above-mentioned will forecast doom-and-gloom because they believe that they represent the majority of users that Apple should be concentrating on when in reality, that is more like <1%.

Most iPhone users (me included) really could care less about time-waster apps like the above. Sure, you yourself may like it but most people have more of a life than to sit down all day and fiddle with things like these. You over-glorify your cause and inject way too much shadow-government conspiracy into this.

If you're really that upset about being denied apps like these, perhaps you should consider some internal reflections and re-prioritize what is important in your life... considering.. you even have one.

I go back to my life now and take comfort in my AAPL.
post #31 of 37
Quote:
Originally Posted by anantksundaram View Post

No, it's not 'pure profit.' Gross margin is just Revenue minus Cost of Goods Sold (or broadly, direct costs). You have to account for Selling, General, and Admin or "SG&A" (broadly, indirect costs) and on top of that, taxes, before you get to 'pure profit.'

Thanks for the lesson.

Whatever that money is...
My point is that in terms of profitability
One $200 iPhone > Ten x $250 netbooks

C.
post #32 of 37
Quote:
Originally Posted by anantksundaram View Post

No, it's not 'pure profit.' Gross margin is just Revenue minus Cost of Goods Sold (or broadly, direct costs). You have to account for Selling, General, and Admin or "SG&A" (broadly, indirect costs) and on top of that, taxes, before you get to 'pure profit.'

Thanks for the jargon.
post #33 of 37
Hello? Thank You!

The R&D is not included in gross margin, so it's not pure profit AS BruceP points out. However, he also points out that the R&D and start-up costs are sunk, and have long-ago been expensed, and with more and more units, those costs are spread and approach zero.... Economies of scale.. Well done.. And, variable or direct costs, (COGS) which make up gross margin, are driven down from buyer power via higher volume.

For those who seem to thing that R&D is significant and that if included would drive iPhone margins way down....AAPL is not MSFT or YHOO, hell it's not even GOOG. Apple's R&D is ~3% of total sales, that include expenditures for Mac, iPod ,iPhone, and everything else. So, lop off another 3% if for the sake of argument. Doesn't change the fact that iPhone margins are still above 55%.




Quote:
Originally Posted by brucep View Post

no
AS apple sells tens of millions of iphone/touches all the original R/D and new product start up costs gets spread so thin that its near absolute zero ,
also the economies of scale demand lower and lower component prices
waste also reaches near zero cost. After the 3rd gen ipod touch and ipod-nano phones are released and they mature a bit total tele sales will hit over 200 million on a 8 or 9 phone line up/


dick tracey is alive and well
post #34 of 37
[QUOTE=Turley Muller;1456745]Hello? Thank You!

For those who seem to thing that R&D is significant and that if included would drive iPhone margins way down....AAPL is not MSFT or YHOO, hell it's not even GOOG. Apple's R&D is ~3% of total sales, that include expenditures for Mac, iPod ,iPhone, and everything else. So, lop off another 3% if for the sake of argument. Doesn't change the fact that iPhone margins are still above 55%.[/QUOTE

HELLO HELLO
THANK YOU

Pure R&D can zap you if your selling or not selling the zune or the xbox type of device ,
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post #35 of 37
Quote:
Originally Posted by anantksundaram View Post

No, it's not 'pure profit.' Gross margin is just Revenue minus Cost of Goods Sold (or broadly, direct costs). You have to account for Selling, General, and Admin or "SG&A" (broadly, indirect costs) and on top of that, taxes, before you get to 'pure profit.'

Really ??? Pure profit is a no meaning word. Is there un pure profit ??

And profit is the final number at end of the 1/4 when all expences are accounted for. And you send the bank a large check. It so simple. Apple had 29bn in the bank last 1/4. This 1/4 they have 32bn in the bank .
So the simple figure is found between the 2 > 1/4's .
All the extra jargon is bullshit because the sands are ever shifting.

9
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post #36 of 37
Quote:
Originally Posted by AppleInsider View Post

A new report suggests Apple turns nearly a 60 percent gross profit on the sale of each iPhone, and the device allows the company to lower prices on other products without impacting its bottom line.

Meanwhile, another report released Wednesday says there is a "surprising" move by consumers toward the higher-end iPhone 3GS at $199 and $299, versus the $99 iPhone 3G.

Financial Alchemist

Analyst Turley Muller, on his blog Financial Alchemist, said that with the carrier subsidies, Apple earns well beyond what it spends to build each iPhone. All three models of the phone earn more than 58 percent margins, with the 32GB iPhone 3GS carrying the most profitable 59.6 percent margin.

"Going forward Apple will recognize higher iPhone revenue carrying a higher gross margin," Muller writes. "As iPhone revenue as a percentage or share of total revenue increases, the impact of the higher iPhone (gross margin) on overall (gross margin) will intensify. This will assuage margin pressures Apple faces in other areas."

Muller goes on to suggest that the high profitability of the iPhone has allowed Apple to lower prices on its MacBook Pro lineup without having any effect on the company's earnings.

"As we just witnessed, Apple cut prices on its Mac line-up, and there hasn't appeared to be any noticeable impact on overall (gross margins)," he writes. "Going forward, Apple is guiding Q4 GM to 34%, suggesting GM in the 36%-38% range, thus there doesn't appear that these price reductions will have a dramatic impact on its overall GM."



Fortune Brainstorm Tech believes people should put stock in what Muller says. As the blog points out, he has come within pennies of predicting Apple's earnings per share during recent quarters, while the Wall Street consensus was off by dimes and quarters.

Kaufman Bros.

And in a report released by Kaufman Bros. Wednesday says that the iPhone 3GS, particularly the $299 32GB model, is doing better than expected.

"There were widespread shortages of nearly all 3GS models through the first weeks of July, due to strong preorders and strong demand," the report reads.



Kaufman Bros. had assumed that more customers would lean toward the affordable $99 iPhone 3G model. The firm expects Apple to sell 6.8 million iPhones in the third financial quarter, a 31 percent year over year increase.

But analyst Shaw Wu, who compiled the report, admitted those numbers could be very conservative, as it is a "tough comparison." The firm has raised its target price for Apple to $184 and recommends that investors buy. Kaufman Bros. joins a number of other Wall Street analysts who are high on AAPL stock.

"We continue to believe Apple is positioned to outperform in this tough macroeconomic environment with its defensible strategic and structural advantages and its vertically integrated model," the report reads. "We see several catalysts in the quarters ahead including Snow Leopard, new iPods, new desktop Macs, and a potential new form factor."

Wonderful news. " potential new form factor " . Tablet?
post #37 of 37
Quote:
Originally Posted by brucep View Post

Really ??? Pure profit is a no meaning word. Is there un pure profit ??

And profit is the final number at end of the 1/4 when all expences are accounted for. And you send the bank a large check. It so simple. Apple had 29bn in the bank last 1/4. This 1/4 they have 32bn in the bank .
So the simple figure is found between the 2 > 1/4's .
All the extra jargon is bullshit because the sands are ever shifting.

9

+1! His user name should be Mr Jargon.
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