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Apple's iPhone margins estimated in excess of 50 percent

post #1 of 46
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Before royalties and logistics expenses are factored in, Apple Inc. stands to generate gross margin in excess of 50 percent on each 8GB iPhone sold at $599, according to one market intelligence service.

El Segundo, Calif.-based iSuppli recently conducted a teardown of the high-end Apple handset, revealing several "surprise" component suppliers, such as Infineon Technologies AG, National Semiconductor Corp. and Balda -- in addition to established component makers like Samsung Electronics Co. Ltd.

"iSupplis teardown, conducted this weekend, determined that the 8Gbyte version of the iPhone has a total hardware Bill-of-Materials (BoM) and manufacturing cost of $265.83, generating a margin in excess of 55 percent on each 8Gbyte iPhone sold at the $599.00 retail price" said Andrew Rassweiler, principal analyst for iSuppli.

Of the new suppliers to the iPod/iPhone family, Infineon is among the biggest winners in terms of semiconductor content, the firm said. The German-based parts maker is believed to be supplying the iPhone's digital baseband, radio-frequency transceiver and power-management devices, providing much of the core communications capability of the handset. Altogether, iSuppli estimates that Infineons silicon content accounts for $15.25 worth of the iPhones BoM, representing 6.1 percent of the 8Gbyte model's total cost.

For its part, Nationals contribution to the iPhone BoM is relatively small with its lone chip in the product costing $1.50, representing less than 1 percent of total product cost. However, iSuppli said the part -- a serial display interface -- is an important design win for National, which has never held a seat in an Apple iPod product. The chip, which connects the display to the graphics controller, uses Nationals Mobile Pixel Link standard, which the company has been attempting to promote for use in mobile devices.

"This is a significant win for National in a high-profile platform that is expected to ship in large volume," Rassweiler said.

Meanwhile, the display module in the iPhone model torn down by iSuppli was provided by Balda of Germany in association with its partner TPK Holding of China. The module costs an estimated $27, according to the firm, representing 10.8 percent of the 8Gbyte models cost. On the other hand, the iPhones touch-screen display itself is reportedly supplied by multiple sources: Epson, Sharp and Toshiba Matsushita Display Technology Co. Ltd. The cost of the unusually thin screen is estimated at $24.50, representing 9.8 percent of the 8Gbyte versions costs.

Perhaps the biggest winner among all the iPhone's component suppliers, according to iSuppli, is Samsung. The South Korean electronics giant supplies the iPhones applications processor -- as was reported by AppleInsider back in January -- which includes an ARM RISC core and costs approximately $14.25 in both versions of the iPhone.

Samsung is also contributing the handset's NAND flash memory and DRAM. In the 4Gbyte version, Samsung has $24 worth of NAND flash, and $48 in the 8GByte version. For both versions, Samsung also supplies 1Gbit of Double Data Rate SDRAM worth $14.00.

In total, iSuppli estimates that Samsung accounts for $76.25 worth of semiconductor content in the 8Gbyte version of the iPhone, giving the company a 30.5 percent share of the product's hardware costthe largest total of any single supplier.

Other companies scoring design wins in the iPhone include: Wolfson, which continues to maintain its design win for the audio codec; CSR plc, which supplies the iPhone Bluetooth silicon costing $1.90; and Marvell, which is contributing a Wi-Fi baseband chip costing $6.00.



iSuppli believes that sales of iPhone, which kicked-off with a bang, will continue at a phenomenal rate. The firm estimates shipments of the inaugural Apple handset to reach 4.5 million units this year, expanding by a factor of nearly seven to reach more than 30 million by 2011.

Additional iPhone component suppliers were revealed in a teardown by Semiconductor Insights, which was covered by AppleInsider on Monday.
post #2 of 46
Upon reading this, I asked myself, "Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"

I decided NO. I'm not upset. I didn't get an iPhone, #1, so this doesn't really affect me all that much. I think this is actually good news.

Apple is making more of a profit off of this device. That means more money into R&D on making the iPhone better and cheaper to produce (i.e. less expensive for me when I can actually afford one!)

Apple typically doesn't make such high profit margins; I'm sure that some PC companies make higher ones on a regular basis. I'm sure the true cost of producing the iPhone is higher than the stated cost of materials. You have to remember that manufacture and shipping costs money, as well as the years of development that went into this baby; the developers need to get paid for their work! It's likely that this is not the whole story.

Basically, good for Apple. They can produce a product that people still want to buy by the hundreds of thousands, even when they mark it up by 50% of cost of parts. I admire that.
post #3 of 46
I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.
post #4 of 46
Quote:
Originally Posted by Rooskibar03 View Post

I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.

Yes. The 55% figure is just the "gross margin" (i.e., revenues minus direct costs as percent of revenues). You have to add to it the indirect costs and overheads (broadly speaking, "selling, general, and admin" expenses, which will also include R&D). At the end, the profit (net income) margin for this product will be somewhat high, but my guess is that it will be closer to 20+%, which is not outrageous for something of this caliber and in this luxury/premium product segment.

But the stock being in such nosebleed territory ($126+ today!!!) is getting a bit worrisome.........
post #5 of 46
Quote:
Originally Posted by Rooskibar03 View Post

I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.

Not to mention the salaries of every employee who will continue to work on software updates, bug fixes, etc.

The bottom line is that we have no idea how much Apple spends on making an iPhone. iSuppli can add up the components and get a figure, but manufacturing any product is a lot more complicated than that.

And even if the margin is 50% or more (I don't think it is) if the market is willing to pay it, then Apple has every right to charge as much as it wants.
post #6 of 46
Quote:
Originally Posted by flinch13 View Post

Upon reading this, I asked myself, "Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"

Gross margin is calculated just the parts and does NOT include:

The massive R&D costs to be recouped - hardware AND software - which continues into the future
Massive legal and marketing and insurance costs
Service and support costs
Assembly of the parts (factories aren't cheap)
Packaging, storage, distribution and transportation
Running the retail and online stores

If Apple were selling a baggie full of parts, which you then had to go pick up yourself one by one from different suppliers, and then no functionality had ever been developed for those parts so they were useless even if you could put them together, THEN Apple would be making that margin... except for the R&D to come up with the parts list and the marketing to let you know it was available
post #7 of 46
Doesn't it strike anyone as odd that tear-down pricing of non-Apple products seems to never reaches the public? Go to Engadget or some other non-Apple centric site and they will cover the Apple pricing, but never anything from Sandisk or Samsung that I remember.
post #8 of 46
Hey, if a simple-minded report from iSuppli can kick AAPL up to $126... who am I to complain? It just reflects badly on the real-world understanding of the costs of doing business by AAPL investors and stock speculators.

Proud AAPL stock owner.

 

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Proud AAPL stock owner.

 

GOA

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post #9 of 46
With regard to profit margins, how much does it cost Mirocsoft to make a copy of Vista OS? Maybe $5US.
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post #10 of 46
Quote:
Originally Posted by city View Post

With regard to profit margins, how much does it cost Mirocsoft to make a copy of Vista OS? Maybe $5US.

Probably the same amount it will take Apple to make a copy of Leopard.
post #11 of 46
Quote:
Originally Posted by Louzer View Post

Probably the same amount it will take Apple to make a copy of Leopard.

That CAN'T be true. Why is Vista so much more expensive than OS X then?
post #12 of 46
Quote:
Originally Posted by anantksundaram View Post

Yes. The 55% figure is just the "gross margin" (i.e., revenues minus direct costs as percent of revenues). You have to add to it the indirect costs and overheads (broadly speaking, "selling, general, and admin" expenses, which will also include R&D). At the end, the profit (net income) margin for this product will be somewhat high, but my guess is that it will be closer to 20+%, which is not outrageous for something of this caliber and in this luxury/premium product segment.

But the stock being in such nosebleed territory ($126+ today!!!) is getting a bit worrisome.........

Why is it a bad thing for the stock to be up high today? I have shares of AAPL and I kinda happy now!
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post #13 of 46
Quote:
Originally Posted by AppleInsider View Post

"iSupplis teardown, conducted this weekend, determined that the 8Gbyte version of the iPhone has a total hardware Bill-of-Materials (BoM) and manufacturing cost of $265.83,

Unsurprisingly, today's figure is remarkably close to iSuppli's earlier estimate (when they didn't have an actual iPhone to take apart.)

http://www.appleinsider.com/articles...hone_sale.html

One of the iPhone chips must have gone up .98 since then.
post #14 of 46
I've seen the price breakdown of some HTC phones.
Quote:
Originally Posted by JeffDM View Post

Doesn't it strike anyone as odd that tear-down pricing of non-Apple products seems to never reaches the public? Go to Engadget or some other non-Apple centric site and they will cover the Apple pricing, but never anything from Sandisk or Samsung that I remember.

That's a pretty nice margin, no matter how many years of research and developement went into it. On that note, it's a sweeet phone, and you're getting what you paid for. If you (general statement, not directed at the post I quoted) want it, get it, if you deem it too expensive, then don't.
post #15 of 46
Quote:
Originally Posted by pazimzadeh View Post

Why is it a bad thing for the stock to be up high today? I have shares of AAPL and I kinda happy now!

Oh, don't get me wrong -- I too am very happy today as a stockholder.....

But whether prices are justified by fundamentals is something I always worry about -- i.e., about how much of the growth prospects are already incorporated into in the stock price (say, at a level such as $120), and hence, how the slightest twitch in expectations can lead to massive price drops.
post #16 of 46
Duh! Including the contract, your damn right apple is making that much off each iphone, I hope in a year or two they stop being greedy and bring down the price (which will really make it a hit)
post #17 of 46
Quote:
Originally Posted by digiology View Post

Duh! Including the contract, your damn right apple is making that much off each iphone, I hope in a year or two they stop being greedy and bring down the price (which will really make it a hit)

Please. Get a clue. The final margin will be in the 20 to 25% area that Apple (and any other sensible company) makes on all their products.

Prices come down as the break points on components and manufacturing kick in, and the internals are redesigned for better assembly flow.

As to making it a hit... its the fastest selling phone of all time.
post #18 of 46
I thought the Razr what's the fastest selling phone of all time.
http://gizmodo.com/gadgets/history-l...ast-274545.php
Quote:
Originally Posted by vinney57 View Post

Please. Get a clue. The final margin will be in the 20 to 25% area that Apple (and any other sensible company) makes on all their products.

Prices come down as the break points on components and manufacturing kick in, and the internals are redesigned for better assembly flow.

As to making it a hit... its the fastest selling phone of all time.
post #19 of 46
Quote:
Originally Posted by BlackSummerNight View Post

I thought the Razr what's the fastest selling phone of all time.
http://gizmodo.com/gadgets/history-l...ast-274545.php

Did you actually read that article, or just the headline?

The iPhone is selling much faster than the Razr did. The article is forecasting (correctly, IMO) that it won't in the long term (two years) sell more than the Razr, despite its strong start.
post #20 of 46
Did you read the article? It's not even close, depending on who's numbers you go by. It took 2 months for Razr to sell 750,000 units, who knows how many iPhones Apple has sold. The numbers are all over the board.
Quote:
Originally Posted by meelash View Post

Did you actually read that article, or just the headline?

The iPhone is selling much faster than the Razr did. The article is forecasting (correctly, IMO) that it won't in the long term (two years) sell more than the Razr, despite its strong start.

I've seen numbers as low as 250K to highs of 700k. Apple has yet to release any official numbers.
post #21 of 46
delete this dupe - when did we loose the ability to delete our own post?
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post #22 of 46
Quote:
Originally Posted by BlackSummerNight View Post

Did you read the article? It's not even close, depending on who's numbers you go by. It took 2 months for Razr to sell 750,000 units, who knows how many iPhones Apple has sold. The numbers are all over the board.

It wasn't until 2005... when MOT started lowering the RAZRs $600? price tag did the phone REALLY start to pickup steam...

Dave
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post #23 of 46
They lowered it to $500. But, I'm not talking price points, I'm just pointing out that they sold a shitload of phones pretty quickly. Moto also had most of the major Cell companies selling their phones, and it was selling world wide.
Quote:
Originally Posted by DaveGee View Post

It wasn't until 2005... when MOT started lowering the RAZRs $600? price tag did the phone REALLY start to pickup steam...

Dave
post #24 of 46
Like apple computers, the iPhone is all about the hardware, design, and the attention to detail. Of course they cant have a fusion engine in the thing, there are techlimits resulting from many other companys. This means that apple has the same Hardware materials to work with as all the other computer makers. What make apple differnt is what they can make the hardware do.

People always argue about how macs are over priced or underpowered. Even if this was the case, macs still have one huge advantage over the competition and this eliminates almost all other factors. They run a OS that just works and has unlimited potential. Even a simple mac mini can one click tasks that the most powerful windows server array couldent even dream of. True that the server array has 1000s of times more power then the mac mini, but it is severly limited by a horrible OS.

Now onto the iPhone. The iPhone is a truly breakthrough product not because of the hardware, but because of the software. Any other company could have built the iPhone yet it would have no impact on the market due to its horrid UI. All other phones out right now, at least every one i have tried, have all been limited by one factor, they have clunky slow UIs that make users want to smash the phone. This is where the iPhone is revolutionary. It has, in my judgement, the best UI of any phone on the market. This will hopfully make other phone makers create products that have a ok UI. If things go right, then the iPhone should revolutionize the mobil phone OS, except for the not being open part.



For me, this Great UI is enough for the margin to be so high. I would pay more for this feature.
post #25 of 46
Quote:
Originally Posted by BlackSummerNight View Post

Did you read the article? It's not even close, depending on who's numbers you go by. It took 2 months for Razr to sell 750,000 units, who knows how many iPhones Apple has sold. The numbers are all over the board.

I've seen numbers as low as 250K to highs of 700k. Apple has yet to release any official numbers.

You are amazing. Did you miss this:

Quote:
Motorola by contrast took much longerthe final three months of 2004to sell 750,000 RAZRs.

Even if the iPhone "only" sold 250k, that is just over the weekend; that is, two days (are Apple stores open on Sunday?) and a few hours on Friday. And that is a very conservative estimate. So for the time between Friday and today, it's pretty definite that the iPhone is selling much, much faster. I would predict it would take at least a 4-5 months for the initial run to calm down and the historical Razr to start catching up.
post #26 of 46
Quote:
Originally Posted by BlackSummerNight View Post

They lowered it to $500. But, I'm not talking price points, I'm just pointing out that they sold a shitload of phones pretty quickly. Moto also had most of the major Cell companies selling their phones, and it was selling world wide.

Exactly. iPhone is selling this well in spite of all the service provider issues that are against it. And by the end of this year, iPhone will be in Europe, right? Who knows on what terms? Imagine what an unlocked, 3G (this is pretty much confirmed for Europe, right?), and maybe higher capacity iPhone would do to the race between Razr and iPhone. So, who knows what will happen in the future. But for the present, the iPhone is definitely selling much faster, in spite of the limitations you mentioned.
post #27 of 46
Quote:
Originally Posted by BlackSummerNight View Post

They lowered it to $500. But, I'm not talking price points, I'm just pointing out that they sold a shitload of phones pretty quickly. Moto also had most of the major Cell companies selling their phones, and it was selling world wide.

It took several YEARS before the US #2 cellular provider had it.... but yea... talking world-wide most everyone did have it as an offering. Hmm did Cingular & T-Mobile & Sprint ALL have the RAZR at the same time??? I'm not sure... but I do know Verizon did get it last given their network.

Dave
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post #28 of 46
Quote:
Originally Posted by meelash View Post

3G (this is pretty much confirmed for Europe, right?), and maybe higher capacity iPhone

Steve Jobs said in January that new models are coming, with new features, and specifically stated that 3G is a feature that will come. (No timeframe given.) Higher capacity is a safe bet in future too. GPS? Hopefully!
post #29 of 46
Probably the biggest difference is it was quite easy to find unlocked RAZRs for sale. That may change eventually, but until Apple makes thing like visual voicemail more friendly to other carriers (5 years?), I don't think it'll really take off in the unlocked market. There are some folks who, rightfully so, due to where they live and/or travel, won't consider a locked cellphone.
post #30 of 46
Quote:
Originally Posted by ChevalierMalFet View Post

I don't think it'll really take off in the unlocked market.

You do realize that a VAST majority of the cell phone consumers in the US have no idea what that even means.... Many of them couldn't even tell you the name of the cell phone they CURRENTLY use... Even if they were looking right at it.

Dave
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post #31 of 46
Quote:
Originally Posted by SpamSandwich View Post

Hey, if a simple-minded report from iSuppli can kick AAPL up to $126... who am I to complain? It just reflects badly on the real-world understanding of the costs of doing business by AAPL investors and stock speculators.

Heh I've been saying the same thing. It's about bloody time my stock went up.


Quote:
Originally Posted by city View Post

With regard to profit margins, how much does it cost Mirocsoft to make a copy of Vista OS? Maybe $5US.

That is a good point. If we go by the actual HW then a copy of Leopard, Vista, or PhotoShop are all worth about 5 cents for the cost of the DVD they are imprinted on.

PS: Samsung is more on iPhones that it is on most of the crappy cell phones it sells.
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post #32 of 46
You'll be surprised how much royalties cost, patents are all over the place and they all want their share.
What? A Home button! That's outrageous! It's our patent, the iPhone is infringing on our patent, cease and desist, irrepairable damages, expensive lawyers etc
The many law-suits that Apple will have to fend-off in the future is gonna be rough, remember Creative?
Once you factor all that in you can divide the 50% profits by two if not more.
post #33 of 46
"Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"

Only a screwball socialist would entertain such a thought. I'm glad you came up with the correct answer to your question.
post #34 of 46
"Before royalties and logistics expenses are factored in, Apple Inc. stands to generate gross margin in excess of 50 percent on each 8GB iPhone sold at $599, according to one market intelligence service. "

While the hardware cost is the most significant cost on a unit basis, there are costs that far exceed the "royalties & logistics ". Keep in mind that Apple has been in development of the iPhone for yearS. Two years ago they approached Verizon and would have had some form of prototype to show them. Apple also built the phone in-house, which would cost exponentially more than any other handset maker, since they can build many phone models from one basic design. Motorola is very adept at this.

Software engineering was left off completely. Clearly a team of software architects had a hand in the beautiful interface. Simple it is not. Apple diverted its resources away from their next OS to finish the product on schedule.

iPhone.com, this domain name was reportedly purchased at a seven digit expense to Apple. They are also likely paying naming royalties to Cisco, who was using the iPhone name first. There are two technology firms, which Apple purchased in pursuit of the iPhone, one developed the multi-touch interface, the other Cover Flow which Apple uses in iTunes and now the OS. Add in the advertising (Oscar), technical support, on going development, and Apple's cost of operations, the total bill is well into $100 mil, of unaccounted costs which iSuppli just ignored. Granted, these are costs which are spread out over many years and are not hard costs per unit. Any discussion of Apple's profit per unit must include this as well.

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post #35 of 46
Quote:
Originally Posted by Sandman619 View Post

There are two technology firms, which Apple purchased in pursuit of the iPhone

After reading your post, one would think that Apple is a totally inefficient company, struggling to contain costs. Exaggerating much? For instance CoverFlow was bought on the cheap, the feature is based on concepts that some guy posted on his blog and was later developed by Jonathan del Strother, known as Catfish in ArsTechnica's Mac Achaia. From what he said he got paid a flat fee, likely less than $50,000. Purchasing a domain name at a seven digit expense is insignificant, that's just a molehill. Apple's costs are not ballooning, advertising expense was $338 million for 2006, that's not much for a company of Apple's size (1.7 percent of revenue). R&D costs are not overwhelming either (3.7 percent of revenue in FY2006).

Of course iSuppli is ignoring these costs, they're talking about Apple's gross margin. Last quarter Apple reported a gross margin of 35.1 percent and there is nothing scandalous about this, nor about the iPhone gross margin. Apple is a "boutique" computer manufacturer branching into consumer electronics, they're not supposed to operate on razor thin margins. As a comparison, Research In Motion's gross margin was a whooping 51.8 percent for the June quarter, down from 55.1 percent in the year-ago quarter. Yet customers are not at the gates with pitchforks and torches.
post #36 of 46
Quote:
Originally Posted by flinch13 View Post

Upon reading this, I asked myself, "Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"

I decided NO. I'm not upset. I didn't get an iPhone, #1, so this doesn't really affect me all that much. I think this is actually good news.

Apple is making more of a profit off of this device. That means more money into R&D on making the iPhone better and cheaper to produce (i.e. less expensive for me when I can actually afford one!)

Apple typically doesn't make such high profit margins; I'm sure that some PC companies make higher ones on a regular basis. I'm sure the true cost of producing the iPhone is higher than the stated cost of materials. You have to remember that manufacture and shipping costs money, as well as the years of development that went into this baby; the developers need to get paid for their work! It's likely that this is not the whole story.

Basically, good for Apple. They can produce a product that people still want to buy by the hundreds of thousands, even when they mark it up by 50% of cost of parts. I admire that.

Hmm, apple had the same margins for ipod and it has never gotten cheaper for same model. Apple might make cheaper iphone with less memory but they will never give you the current iphone cheaper. come on, you know this.. why live in denial?. Apple never makes their product cheaper. The profit margin goes to jobs and his friends, not to make cheaper products for you.

Also apple does make such high profit margins. Dude, you ought to read post from a few more threads.. everyone knows apple has high profit margin.. it's been discussed to death. Most apple fans think it's justified, me, i think it's not (i've never known apple to reduce the price of their products so why would i agree that the margins are reasonable?). Don't let me stop you though... keep dreaming.. by the time you want an iphone and it's the same price, i am sure you will justify buying the iphone using another rationale.
post #37 of 46
Quote:
Originally Posted by wnurse View Post

Hmm, apple had the same margins for ipod and it has never gotten cheaper for same model.

The original iPod was $399 in October 2001. In March 2002, they sold a 10 GB version for $499.

Today's most expensive iPod is $349.
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post #38 of 46
Well in MS vs. Apple debates, saying "Steve Jobs isn't in it for the money...blah blah blah" should never be brought up again.
post #39 of 46
Quote:
Originally Posted by Le Master View Post

Well in MS vs. Apple debates, saying "Steve Jobs isn't in it for the money...blah blah blah" should never be brought up again.

People are saying "Steve isn't in it for the money" cause he isn't come on, neither is Gates... they both have gobs of money and basically everything they'd ever want material wise... Something else is DRIVING both of them.

As far as APPLE not being 'in it for the money'?!?!?!

NOBODY to the best of my knowledge has EVER EVER EVER indicated such... The same hold true for Microsoft or any other corporation...

THEY ARE ALL IN IT TO MAXIMIZE PROFITABILITY BY ANY AND ALL MEANS*

Dave

* Legal means one would hope...
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post #40 of 46
Quote:
Originally Posted by Flounder View Post

The original iPod was $399 in October 2001. In March 2002, they sold a 10 GB version for $499.

Today's most expensive iPod is $349.

Yes, apple will improve their products and charge the same price while other companies also improve their products and lower the price. Apple fans think improving the product at same price is same as lowering the price while everyone else EXPECTS a company to improve their products AND lower price. Hey, the apple world is different.. i get that.. just don't feed me FUD about apple lowering price.

also, 349 is not that big a difference from 399.. we are not talking a drop from $500 to $99 are we?.

I mean, if you can't afford it at $599.. why would you afford it at $559?.
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