Apple's iPhone gross margins estimated near 60 percent

Posted:
in iPhone edited January 2014
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."
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Comments

  • Reply 1 of 36
    saareksaarek Posts: 1,396member
    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!
  • Reply 2 of 36
    al_bundyal_bundy Posts: 1,525member
    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
  • Reply 3 of 36
    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
  • Reply 4 of 36
    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.
  • Reply 5 of 36
    carniphagecarniphage Posts: 1,984member
    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.
  • Reply 6 of 36
    cmf2cmf2 Posts: 1,427member
    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.
  • Reply 7 of 36
    tenobelltenobell Posts: 7,014member
    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.



  • Reply 8 of 36
    hill60hill60 Posts: 6,992member
    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.



  • Reply 9 of 36
    paxmanpaxman Posts: 4,709member
    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.
  • Reply 10 of 36
    al_bundyal_bundy Posts: 1,525member
    Maybe the pre, but blackberry is a sinking ship along with android. Winmo might have a future with future versions
  • Reply 11 of 36
    nagrommenagromme Posts: 2,834member
    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.)
  • Reply 12 of 36
    dentondenton Posts: 725member
    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!
  • Reply 13 of 36
    mjtomlinmjtomlin Posts: 2,572member
    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.
  • Reply 14 of 36
    al_bundyal_bundy Posts: 1,525member
    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.
  • Reply 15 of 36
    neilmneilm Posts: 956member
    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.
  • Reply 16 of 36
    quinneyquinney Posts: 2,528member
    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.
  • Reply 17 of 36
    chronsterchronster Posts: 1,894member
    kind of hard NOT to make money when you outsource the manufacturing to a border-line slave labor camp in China!





    (I'm kidding )
  • Reply 18 of 36
    quadra 610quadra 610 Posts: 6,756member
    delete.
  • Reply 19 of 36
    anantksundaramanantksundaram Posts: 20,352member
    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.'
  • Reply 20 of 36
    anantksundaramanantksundaram Posts: 20,352member
    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.
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