Apple's iPhone twice as profitable per unit as iPad
Though Apple is tight-lipped about the profitability of its individual products, a court filing in the company's ongoing lawsuit with Samsung has revealed that the carrier-subsidized iPhone has margins north of 50 percent, nearly twice as high as the iPad.
For iPhones sold between April of 2010 and March of 2012, Apple's gross margins were between 49 and 58 percent, according to filings dug through by Reuters. In comparison, margins on the iPad were between 23 and 32 percent during the same span.
The numbers reveal more clearly how important the iPhone is to Apple's business. iPhone sales last quarter were up 28 percent, a number lower than investors had anticipated, while the lower-margin iPad reached record sales of 17 million units.
Apple's gross margin last quarter across all product lines was 42.8 percent, but that number is largely driven by the iPhone, which makes up a majority of the company's sales.
With iPhone gross margins reaching beyond 50 percent, the now-public information may help heat up a debate over iPhone subsidy costs paid by Apple's carrier partners. Apple Chief Executive Tim Cook was questioned about carrier subsidies during his company's quarterly earnings conference call earlier this week.
Cook said his company would continue to focus making "the best products in the world," and that he is confident carriers will want to continue subsidizing the cost iPhone for their subscribers. Though the iPhone typically carries a higher subsidy than competing smartphones, Cook said Apple's handset attracts more loyal customers who are more likely to buy new features that benefit carriers, like shared data plans.
"We're going to focus on making the best product, and I think the carriers will be very motivated to make sure they provide them to the customers," Cook said.
The gross margin figures for the iPhone and iPad are only the latest highly sensitive documents to have been made public as part of Apple's lawsuit with Samsung. Earlier this week, confidential photographs of iPhone and iPad prototypes were disclosed, showing some of Apple's different design concepts, like an iPad with a kickstand and an iPhone with two-tone back casing.
For iPhones sold between April of 2010 and March of 2012, Apple's gross margins were between 49 and 58 percent, according to filings dug through by Reuters. In comparison, margins on the iPad were between 23 and 32 percent during the same span.
The numbers reveal more clearly how important the iPhone is to Apple's business. iPhone sales last quarter were up 28 percent, a number lower than investors had anticipated, while the lower-margin iPad reached record sales of 17 million units.
Apple's gross margin last quarter across all product lines was 42.8 percent, but that number is largely driven by the iPhone, which makes up a majority of the company's sales.
With iPhone gross margins reaching beyond 50 percent, the now-public information may help heat up a debate over iPhone subsidy costs paid by Apple's carrier partners. Apple Chief Executive Tim Cook was questioned about carrier subsidies during his company's quarterly earnings conference call earlier this week.
Cook said his company would continue to focus making "the best products in the world," and that he is confident carriers will want to continue subsidizing the cost iPhone for their subscribers. Though the iPhone typically carries a higher subsidy than competing smartphones, Cook said Apple's handset attracts more loyal customers who are more likely to buy new features that benefit carriers, like shared data plans.
"We're going to focus on making the best product, and I think the carriers will be very motivated to make sure they provide them to the customers," Cook said.
The gross margin figures for the iPhone and iPad are only the latest highly sensitive documents to have been made public as part of Apple's lawsuit with Samsung. Earlier this week, confidential photographs of iPhone and iPad prototypes were disclosed, showing some of Apple's different design concepts, like an iPad with a kickstand and an iPhone with two-tone back casing.
Comments
That's it. Apple needs to discontinue the iPad.
17 million iPads sold this last quarter. And it's not even a smartphone. Folks have to pay in full for it.
I wonder if this lawsuit is revealing more info/data than Apple would like. I imagine the carriers will use this in their future negotiations with Apple.
Quote:
Originally Posted by AppleInsider
the carrier-subsidized iPhone has margins north of 50 percent,
When I read this, it makes me wonder if the implication is that the margins on iPhones that weren't subsidized is different?
If the margins are different for un-subsidized iPhones then what are those margins? And if the margins are the same for an iPhone regardless of if it was subsidized or not, then why make such a big deal about some of them being subsidized?
Hmm... the title should have been "Apple's iPad Profit Margin only half of iPhone" - since iPhone came first, as most media outlets reported.
Oh well. Welcome to AI.
Originally Posted by tooltalk
Hmm... the title should have been "Apple's iPad Profit Margin only half of iPhone" - since iPhone came first, as most media outlets reported.
Who gives a frick? "Light faster than sound." "Sound slower than light."
Quote:
Originally Posted by Quadra 610
17 million iPads sold this last quarter. And it's not even a smartphone. Folks have to pay in full for it.
The great thing is that the resale value for an iDevice is so high. If you 'upgrade,' you can recoup much of your investment.
Much as I hate to agree with you, that should be the emphasis, but not for the reason you give.
The implication is that Apple is taking longer to get back their R&D on the iPad, so it hurts more that Samsung is raking off a percentage of sales by their copying of the iPad.
A couple of observations:
1) We should expect the gross margins on the iPad to be lower than those of the iPhone, given that they are -- during the period considered -- being compared at different stages of their life cycle. As volumes ramp up and the supply/manufacturing chain becomes more efficient and quality improves, gross margins will rise. The iPhone was already a close-to-mature product when the iPad was just getting introduced. A more relevant comparison, in other words would be between equivalent stages in the life cycle. (Phil Schiller often warns about margin pressure in his quarterly conf calls when there is significant new product about to be announced).
2) If these numbers are true, can you imagine how shaved-to-the-bone (or perhaps even negative) the profit margins for the Fire and the Nexus tablet must be, given their selling price?! Talk about cutting your nose to spite your face.
3) AI, please change "profitable" in the headline to "has twice the gross margin." These are, as you know, two very different concepts. The Reuters article (and the Apple filing) is about gross margin, not profit margin.
The iPhone sells for something like $650. The iPad ranges from $499 to $849.
Now, consider that the iPad has 4 times the screen area, more lighting, more powerful CPU, a case that's 4 times as large, and a much larger battery. Why would anyone be surprised that the iPad is less profitable?
Quote:
Originally Posted by jragosta
Why is this any surprise?
The iPhone sells for something like $650. The iPad ranges from $499 to $849.
Now, consider that the iPad has 4 times the screen area, more lighting, more powerful CPU, a case that's 4 times as large, and a much larger battery. Why would anyone be surprised that the iPad is less profitable?
But doesn't it stand to reason that someone who enjoys their iPhone would opt for an iPad over a different device in most cases? And the other way around? One will lead to the other which adds to the overall profits for Apple. It is a win win for them.
The biggest cost for any company is getting the customer. iOS users will tend to continue on the iOS track and that is future currently unrealized profits for Apple.
Quote:
Originally Posted by Flaneur
The implication is that Apple is taking longer to get back their R&D on the iPad, so it hurts more that Samsung is raking off a percentage of sales by their copying of the iPad.
The implication I get is that Apple's margins are in a precarious position.
The high margin iPhone business is not growing like it once did. There are storm clouds on the horizon regarding carrier subsidies. And competitors are producing better and better alternatives for consumers.
The iPad is growing quickly in sales, but the margins don't make the cut for Apple's average. To the extent that they continue to form a larger portion of Apple's revenue, the margins will shrink, as will the ROI, as will the PE ratio as will the stock's value.
Quote:
Originally Posted by JerrySwitched26
The implication I get is that Apple's margins are in a precarious position.
The high margin iPhone business is not growing like it once did. There are storm clouds on the horizon regarding carrier subsidies. And competitors are producing better and better alternatives for consumers.
The iPad is growing quickly in sales, but the margins don't make the cut for Apple's average. To the extent that they continue to form a larger portion of Apple's revenue, the margins will shrink, as will the ROI, as will the PE ratio as will the stock's value.
You started with a false assumption and then added a perfect storm of assumptions to it.
Every manufacturer in the world would LOVE to have Apple's "precarious position." Furthermore, Apple is in the position to disrupt the market at any time with new products, upgraded old products or add pricing pressure. By introducing the retina display in the tablet market Apple has raised the bar to where no one else can go. While this did raise the component cost of the iPad temporarily, It is why Apple is so dominate in the tablet market.
There are various ways a company, such as Apple, can dominate a market. Apple choses not to use pricing as one of them.
Quote:
Originally Posted by Harbinger
I wonder if this lawsuit is revealing more info/data than Apple would like. I imagine the carriers will use this in their future negotiations with Apple.
The carriers are already in the loop here.
Quote:
Originally Posted by Macky the Macky
You started with a false assumption and then added a perfect storm of assumptions to it.
Every manufacturer in the world would LOVE to have Apple's "precarious position." Furthermore, Apple is in the position to disrupt the market at any time with new products, upgraded old products or add pricing pressure. By introducing the retina display in the tablet market Apple has raised the bar to where no one else can go. While this did raise the component cost of the iPad temporarily, It is why Apple is so dominate in the tablet market.
There are various ways a company, such as Apple, can dominate a market. Apple choses not to use pricing as one of them.
Exactly.
As an aside, pretty much all his posts are based on false assumptions. Except when it's a false premise.
Quote:
Originally Posted by muppetry
the phone manufacturers would likely have to drop their prices to compete and the results would be closer.
And then the Telcos would have to lower their rates since they are no longer subsidising phones... not very likely that one.
Quote:
Originally Posted by JerrySwitched26
The implication I get is that Apple's margins are in a precarious position.
The high margin iPhone business is not growing like it once did. There are storm clouds on the horizon regarding carrier subsidies. And competitors are producing better and better alternatives for consumers.
The iPad is growing quickly in sales, but the margins don't make the cut for Apple's average. To the extent that they continue to form a larger portion of Apple's revenue, the margins will shrink, as will the ROI, as will the PE ratio as will the stock's value.
Don't know what world you live in, but the iphone is FAR from any danger. Its just that people are holding off for the next one.
Also, Google may play a part in getting the carriers to not pay such high prices anymore in the long term. Why do I say this?
See what google has done with fiber? 1 Gbs for the price ISP's charge for 5 Mbs per second. 250 times the speed for the same price.
http://news.cnet.com/8301-1023_3-57481108-93/google-shows-isps-how-to-build-a-superfast-network/?tag=mncol;cnetRiver
If they can undercut ISP's by that much, how long before they cast their eye to the mobile sector?
If they can come in and offer more bandwidth than Verizon and co. and at a fraction of the price, they will force the carriers into a corner where they will not be able to afford such high subsidies anymore.
IMO, Apple should keep an eye on this move by Google to get into the infrastructure business. If they allow them to become major contendors in this sector, it may have implications in terms of what subsidies they are willing to pay.
As much as people love the iphone. If you have one carrier willing to offer you unlimited data and calls for 5 or 10 dollars per month vs an iphone package for much more elsewhere WITHOUT unlimited data and calls, well that creates trouble in the market. And judging by the cutthroat tactics Google have now employed in the broadband sector (fios is $205 for 300 Mbs while google is $70 for 1000 Mbs. Oh, and unlike other ISP's we are talking about 1 Gbs down AND UP), a reaction will be needed sooner rather than later.
Oh, and keep in mind, just as with google fibre where they are giving away nexus 7 devices, Google may very well choose to give away nexus phones as well. It is possible.
iFibre perhaps?
Actually, I like [B]Anant's[/B] point above: as the production and supply wrinkles are ironed out, margins will improve.
And we know that Apple priced the iPad aggressively to begin with, in order to stake out the territory for the tablet.
Of course you do. But then, you seem to get that implication from everything you read:
Headline: Apple sales are booming
Jerrytroll: "Apple is doomed"
Headline: 90% of mobile internet advertising is due to iOS
Jerrytroll: "Apple is doomed"
Headline: Apple MBA is so desirable that all the competitors are trying to copy it but failing to hit Apple's price
Jerrytroll: "Apple is doomed"
Headline: Apple sales and profits continue to grow at double digit rates while most of the competitors are showing declines in sales and profits
Jerrytroll: "Apple is doomed"