I suspect the same costs for the 5C will be In the $180 range.
I don't know what other costs Apple assigns directly to the device -- but let's say it's $20.
So, $180 + $20 == $200 total direct cost of the 5C.
Apple can sell the 5C to resellers for $400.
Apple gross profit per 5C = $400 - $200 == $200 or 50% margin.
And... the resellers can sell the 5C to end users at whatever contract or unlocked price meets their profit objectives.
Please don't make up numbers.
Even if the BOM numbers are correct, they do not include:
- Packaging
- Labor
- Shipping of components
- Shipping of finished product
- Plant overhead
- Quality control costs
- Rework cost
- Scrap costs
- Machining costs
- All the other overhead costs (some of the cost of development may be assigned to COGS)
- Support costs
Your $20 guess is far, far, far too low. Apple's average margin is in the 35% range and it's unlikely that this phone varies that much from that.
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
Apple sets the price, period, not the reseller. Any "sale" you see on Apple products must first be cleared by Apple. They are notoriously strict on this point, to the point of not even allowing in store coupons of the "spend 300 get such and such off" variety to be used with their products. This isn't Walmart, this is Apple AND Walmart. Like another pointed out, that Apple is allowing this sort of discount so early is an interesting and uncommon thing.
You want to buy a new car -- you basically have 3 options: [LIST=1] [*] pay cash [*] finance over time with a cash discount [*] finance over time at a percentage interest rate [/LIST]
You can negotiate price and/or accessories and services included in the package.
The dealer gets paid, the manufacturer gets paid and any "financing" is assigned to a 3rd-party -- who collects the payments and assumes the risk any any additional recovery costs if the buyer stops paying or skips.
Now, what if you could buy an unlocked iPhone under contract...
Say, from the iTunes store... [LIST=1] [*] You choose to finance it at 0% interest for 18 months [*] $49 up front and 18 payments of $27.78 [/LIST]
Now, Apple can assign the financing/risk to a finance company * -- but act as the agent to collect payments -- through the iTunes store.
The finance company buys the contract from Apple at the wholesale price plus interest.
* or, possibly find a company flush with $ billions in cash...
So, for $49 up front and $27.78 per month the consumer gets an iPhone and all that it entails.
He can shop around and buy phone services prepaid or under contract -- whatever suits him best.
Now, here's an amazing consideration unique to the iPhone. There is very little risk to Apple or a financing agent: If the user skips or doesn't pay his bill the device becomes unusable (grace period and emergency call assumed).
I suspect the same costs for the 5C will be In the $180 range.
I don't know what other costs Apple assigns directly to the device -- but let's say it's $20.
So, $180 + $20 == $200 total direct cost of the 5C.
Apple can sell the 5C to resellers for $400.
Apple gross profit per 5C = $400 - $200 == $200 or 50% margin.
And... the resellers can sell the 5C to end users at whatever contract or unlocked price meets their profit objectives.
Please don't make up numbers.
Even if the BOM numbers are correct, they do not include:
- Packaging
- Labor
- Shipping of components
- Shipping of finished product
- Plant overhead
- Quality control costs
- Rework cost
- Scrap costs
- Machining costs
- All the other overhead costs (some of the cost of development may be assigned to COGS)
- Support costs
Your $20 guess is far, far, far too low. Apple's average margin is in the 35% range and it's unlikely that this phone varies that much from that.
Read the link -- it includes mfg costs (labor), packaging... The plants belong to 3rd-parties (although Apple may help finance them and physical equipment to reduce Apples costs for components or services).
Most of the costs you itemize are borne by the 3rd-party manufacturer. Shipping costs, likely, are borne by Apple.
I assumed a gross margin and $20 in direct costs (COGS). From that you deduct the cost of Sales, G&A... to get a net margin (usually in the 35% range for Apple products).
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
Too much conspiracy theory, IMO.
I think that Apple wants to emphasize the 5C -- it will become the top selling iPhone.
The manufacturing for 5C guts and components are already ramped up to satisfy a large demand.
The 5S is a new device, with New AV and M7 chips, New FP scanner. Any of these components could be in short supply, and the manufacturing is not ramped up.
Apple sets the price, period, not the reseller. Any "sale" you see on Apple products must first be cleared by Apple. They are notoriously strict on this point, to the point of not even allowing in store coupons of the "spend 300 get such and such off" variety to be used with their products. This isn't Walmart, this is Apple AND Walmart. Like another pointed out, that Apple is allowing this sort of discount so early is an interesting and uncommon thing.
I owned computer stores (1978-89) that were Apple resellers. I have been dealing with Apple for 35 years.
What you say was true then...
I think that Apple is less rigid now due to changes in policy and/or regulation.
Apple sets the MSRP (ManufacturerSuggested Retail Price) -- I am not sure that Federal or foreign regulations let them enforce it, or that they choose to.
Apple sets the price, period, not the reseller. Any "sale" you see on Apple products must first be cleared by Apple. They are notoriously strict on this point, to the point of not even allowing in store coupons of the "spend 300 get such and such off" variety to be used with their products. This isn't Walmart, this is Apple AND Walmart. Like another pointed out, that Apple is allowing this sort of discount so early is an interesting and uncommon thing.
As someone else said this might mean there is price flexibility with the 5C. I think the phone is great but Apple screwed up big time by allowing Wall Street analysts and the rumor sites to predict the 5C would be a cheap phone. Of course Apple doesn't directly respond to rumors, and I'd never expect them to reveal prices to anyone in the media. But there's a way they could have leaked something via "sources" about the C standing for color, not cheap. I hope they are flexible in pricing because I think the 5C is a great phone and I'd rather someone buy it than a Moto X or Lumia.
About the 5C preorder....one theory I saw on Twitter is Apple wants to gauge which colors are most popular so they have a better idea how to stock the stores.
You want to buy a new car -- you basically have 3 options:
pay cash
finance over time with a cash discount
finance over time at a percentage interest rate
You can negotiate price and/or accessories and services included in the package.
The dealer gets paid, the manufacturer gets paid and any "financing" is assigned to a 3rd-party -- who collects the payments and assumes the risk any any additional recovery costs if the buyer stops paying or skips.
Now, what if you could buy an unlocked iPhone under contract...
Say, from the iTunes store...
You choose to finance it at 0% interest for 18 months
$49 up front and 18 payments of $27.78
Now, Apple can assign the financing/risk to a finance company * -- but act as the agent to collect
payments -- through the iTunes store.
The finance company buys the contract from Apple at the wholesale price plus interest.
* or, possibly find a company flush with $ billions in cash...
So, for $49 up front and $27.78 per month the consumer gets an iPhone and all that it entails.
He can shop around and buy phone services prepaid or under contract -- whatever suits him best.
Now, here's an amazing consideration unique to the iPhone. There is very little risk to Apple or a financing agent: If the user skips or doesn't pay his bill the device becomes unusable (grace period and emergency call assumed).
What's not to like?
Oops, I was wrong... too conservative:
The real news here is that T-Mobile’s new Uncarrier plans mean that the iPhone 5c will sell for $0 down with the $528 price tag paid through 24 monthly installments of $22.
As someone else said this might mean there is price flexibility with the 5C. I think the phone is great but Apple screwed up big time by allowing Wall Street analysts and the rumor sites to predict the 5C would be a cheap phone. Of course Apple doesn't directly respond to rumors, and I'd never expect them to reveal prices to anyone in the media. But there's a way they could have leaked something via "sources" about the C standing for color, not cheap. I hope they are flexible in pricing because I think the 5C is a great phone and I'd rather someone buy it than a Moto X or Lumia.
I have to disagree with almost all of this. First off there was no one who thought the "c" stood for "cheap." Second, I don't think anyone at Apple particularly cards that the stock dropped. If Apple choose the right price points, etc. the new phones will be a huge hit and the stock price will react accordingly.
I also don't think it will be a "problem" if the 5c ends up being discounted in a few months--unless it doesn't sell well before that. It's very possible that it'll be a big hit at $99 and discounts in 3-6 months to make it "free" will cause a second surge in sales. I'm willing to wait and see (and I do have a significant--for me--investment in AAPL, so I'm not disinterested).
I have to disagree with almost all of this. First off there was no one who thought the "c" stood for "cheap." Second, I don't think anyone at Apple particularly cards that the stock dropped. If Apple choose the right price points, etc. the new phones will be a huge hit and the stock price will react accordingly.
I also don't think it will be a "problem" if the 5c ends up being discounted in a few months--unless it doesn't sell well before that. It's very possible that it'll be a big hit at $99 and discounts in 3-6 months to make it "free" will cause a second surge in sales. I'm willing to wait and see (and I do have a significant--for me--investment in AAPL, so I'm not disinterested).
I agree with you. Let's face it... out of the millions of people that might buy this phone, how many even knew about the 5C designation. How many even read any tech analyst comments. A few people "might" have heard that Apple is bringing out a "cheaper" phone, and it did.
The 5C is what it is and the market will decide if it's worthy on its own merits... not on what some tech analyst said 6 months ago.
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
The lines at the stores will shut up the media whiners going "Look NO lines! Apple is Doomed!" When Apple deliberately and specifically prevented lines to avoid the previous riots being repeated in China everyone bit on that storyline.
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
You can still order it on launch day from the comfort of your home and you'll get it a few days later than you normally would, is that such a big deal?
Read the link -- it includes mfg costs (labor), packaging... The plants belong to 3rd-parties (although Apple may help finance them and physical equipment to reduce Apples costs for components or services).
Most of the costs you itemize are borne by the 3rd-party manufacturer. Shipping costs, likely, are borne by Apple.
I assumed a gross margin and $20 in direct costs (COGS). From that you deduct the cost of Sales, G&A... to get a net margin (usually in the 35% range for Apple products).
No, you don't. Your estimates are wrong in many respects.
1. There undoubtedly more than $20 in direct costs. I listed a bunch of costs that need to be included.
2. You simply made up a number for BOM without any evidence. iSuppli has no idea what Apple pays for things - they simply made them up. Then you took iSuppli's made up numbers and made your own arbitrary changes.
3. SOME selling and admin costs can be included in COGS. If the cost can be directly assigned to the product sale, it can be included in COGS rather than overheads. A few examples of SGA costs that are sometimes included in COGS: commissions, rebates, promotions (like BOGO which Apple doesn't use), and so on. Some admin costs can also be included in COGS, as well, if they can be directly attributed to a product.
In the end, you have no idea what Apple's margins are on this product.
Read the link -- it includes mfg costs (labor), packaging... The plants belong to 3rd-parties (although Apple may help finance them and physical equipment to reduce Apples costs for components or services).
Most of the costs you itemize are borne by the 3rd-party manufacturer. Shipping costs, likely, are borne by Apple.
I assumed a gross margin and $20 in direct costs (COGS). From that you deduct the cost of Sales, G&A... to get a net margin (usually in the 35% range for Apple products).
No, you don't. Your estimates are wrong in many respects.
1. There undoubtedly more than $20 in direct costs. I listed a bunch of costs that need to be included.
2. You simply made up a number for BOM without any evidence. iSuppli has no idea what Apple pays for things - they simply made them up. Then you took iSuppli's made up numbers and made your own arbitrary changes.
3. SOME selling and admin costs can be included in COGS. If the cost can be directly assigned to the product sale, it can be included in COGS rather than overheads. A few examples of SGA costs that are sometimes included in COGS: commissions, rebates, promotions (like BOGO which Apple doesn't use), and so on. Some admin costs can also be included in COGS, as well, if they can be directly attributed to a product.
In the end, you have no idea what Apple's margins are on this product.
Why are you attacking me?
I
I linked to a site that providesi (BOM) parts, mfg, and packaging costs -- thought to be high (conservative) by many.
Having 11 plus years experience as an Apple reseller, I think I understand how Apple and Apple resellers work.
Yes, I have no idea on Apple's margins... But , based real-life experience, I will guess that my estimates are better than yours..
The resellers are setting a lower "street" price by reducing their margins!
Apple'a margin as the manufacturer selling to resellers remains the same.
Likely, the Apple online and physical stores will match the street prices -- these stores are essentially resellers and have a different profit/margin objective than Apple, the manufacturer.
What interests me is if we will see the same kind of selling price elasticity by resellers for unlocked iPhones:
1) could we hit the so-called US $486 "sweet spot" price for China?
2) will there be a lessening dependency on subsidies?
3) if so, what will replace subsidies?
I see some interesting opportunities, here -- and most are good for Apple.
I suspect the same costs for the 5C will be In the $180 range.
I don't know what other costs Apple assigns directly to the device -- but let's say it's $20.
So, $180 + $20 == $200 total direct cost of the 5C.
Apple can sell the 5C to resellers for $400.
Apple gross profit per 5C = $400 - $200 == $200 or 50% margin.
And... the resellers can sell the 5C to end users at whatever contract or unlocked price meets their profit objectives.
I agree... and stated the same in my post the morning after the event.
The 5C is the "Phil Schiller's iPhone for marketing " and has price-flexibility built in for any time, place or provider selling it around the world.
Soft sales months, locations, or countries? Promotions with an eye to the 40% profit margins Apple demands.
Note: why would Apple ever lower the price of the phone on launch when history tells them that they have a difficult time keeping up with demand and that the phone sells quite well at full price the first 3-6 months after the launch? Why would Apple not take advantage of that very unique position and throw money down the toilet?
Also, never forget: the very first iPhone had a price adjustment a few months after it's debut. This, after they "cleaned up" selling to the early adopters and loyal fans that saw that getting in early was worth the extra money.
The 5C is going to do very well at this price, and when the numbers start to slide, say in the Spring... it will come down in price without a doubt in my mind.
The resellers are setting a lower "street" price by reducing their margins!
Apple'a margin as the manufacturer selling to resellers remains the same.
Likely, the Apple online and physical stores will match the street prices -- these stores are essentially resellers and have a different profit/margin objective than Apple, the manufacturer.
What interests me is if we will see the same kind of selling price elasticity by resellers for unlocked iPhones:
1) could we hit the so-called US $486 "sweet spot" price for China?
2) will there be a lessening dependency on subsidies?
3) if so, what will replace subsidies?
I see some interesting opportunities, here -- and most are good for Apple.
I suspect the same costs for the 5C will be In the $180 range.
I don't know what other costs Apple assigns directly to the device -- but let's say it's $20.
So, $180 + $20 == $200 total direct cost of the 5C.
Apple can sell the 5C to resellers for $400.
Apple gross profit per 5C = $400 - $200 == $200 or 50% margin.
And... the resellers can sell the 5C to end users at whatever contract or unlocked price meets their profit objectives.
I agree... and stated the same in my post the morning after the event.
The 5C is the "Phil Schiller's iPhone for marketing " and has price-flexibility built in for any time, place or provider selling it around the world.
Soft sales months, locations, or countries? Promotions with an eye to the 40% profit margins Apple demands.
Note: why would Apple ever lower the price of the phone on launch when history tells them that they have a difficult time keeping up with demand and that the phone sells quite well at full price the first 3-6 months after the launch? Why would Apple not take advantage of that very unique position and throw money down the toilet?
Also, never forget: the very first iPhone had a price adjustment a few months after it's debut. This, after they "cleaned up" selling to the early adopters and loyal fans that saw that getting in early was worth the extra money.
The 5C is going to do very well at this price, and when the numbers start to slide, say in the Spring... it will come down in price without a doubt in my mind.
Comments
Please don't make up numbers.
Even if the BOM numbers are correct, they do not include:
- Packaging
- Labor
- Shipping of components
- Shipping of finished product
- Plant overhead
- Quality control costs
- Rework cost
- Scrap costs
- Machining costs
- All the other overhead costs (some of the cost of development may be assigned to COGS)
- Support costs
Your $20 guess is far, far, far too low. Apple's average margin is in the 35% range and it's unlikely that this phone varies that much from that.
Yeah, no.
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
You want to buy a new car -- you basically have 3 options:
[LIST=1]
[*] pay cash
[*] finance over time with a cash discount
[*] finance over time at a percentage interest rate
[/LIST]
You can negotiate price and/or accessories and services included in the package.
The dealer gets paid, the manufacturer gets paid and any "financing" is assigned to a 3rd-party -- who collects the payments and assumes the risk any any additional recovery costs if the buyer stops paying or skips.
Now, what if you could buy an unlocked iPhone under contract...
Say, from the iTunes store...
[LIST=1]
[*] You choose to finance it at 0% interest for 18 months
[*] $49 up front and 18 payments of $27.78
[/LIST]
Now, Apple can assign the financing/risk to a finance company * -- but act as the agent to collect
payments -- through the iTunes store.
The finance company buys the contract from Apple at the wholesale price plus interest.
* or, possibly find a company flush with $ billions in cash...
So, for $49 up front and $27.78 per month the consumer gets an iPhone and all that it entails.
He can shop around and buy phone services prepaid or under contract -- whatever suits him best.
Now, here's an amazing consideration unique to the iPhone. There is very little risk to Apple or a financing agent: If the user skips or doesn't pay his bill the device becomes unusable (grace period and emergency call assumed).
What's not to like?
Didn't say that.
Read the link -- it includes mfg costs (labor), packaging... The plants belong to 3rd-parties (although Apple may help finance them and physical equipment to reduce Apples costs for components or services).
Most of the costs you itemize are borne by the 3rd-party manufacturer. Shipping costs, likely, are borne by Apple.
I assumed a gross margin and $20 in direct costs (COGS). From that you deduct the cost of Sales, G&A... to get a net margin (usually in the 35% range for Apple products).
Too much conspiracy theory, IMO.
I think that Apple wants to emphasize the 5C -- it will become the top selling iPhone.
The manufacturing for 5C guts and components are already ramped up to satisfy a large demand.
The 5S is a new device, with New AV and M7 chips, New FP scanner. Any of these components could be in short supply, and the manufacturing is not ramped up.
I owned computer stores (1978-89) that were Apple resellers. I have been dealing with Apple for 35 years.
What you say was true then...
I think that Apple is less rigid now due to changes in policy and/or regulation.
Apple sets the MSRP (Manufacturer Suggested Retail Price) -- I am not sure that Federal or foreign regulations let them enforce it, or that they choose to.
Oops, I was wrong... too conservative:
http://************/2013/09/12/t-mobile-offering-0-down-on-iphone-5c-99-down-on-iphone-5s-with-monthly-installment-plan/
As someone else said this might mean there is price flexibility with the 5C. I think the phone is great but Apple screwed up big time by allowing Wall Street analysts and the rumor sites to predict the 5C would be a cheap phone. Of course Apple doesn't directly respond to rumors, and I'd never expect them to reveal prices to anyone in the media. But there's a way they could have leaked something via "sources" about the C standing for color, not cheap. I hope they are flexible in pricing because I think the 5C is a great phone and I'd rather someone buy it than a Moto X or Lumia.
I have to disagree with almost all of this. First off there was no one who thought the "c" stood for "cheap." Second, I don't think anyone at Apple particularly cards that the stock dropped. If Apple choose the right price points, etc. the new phones will be a huge hit and the stock price will react accordingly.
I also don't think it will be a "problem" if the 5c ends up being discounted in a few months--unless it doesn't sell well before that. It's very possible that it'll be a big hit at $99 and discounts in 3-6 months to make it "free" will cause a second surge in sales. I'm willing to wait and see (and I do have a significant--for me--investment in AAPL, so I'm not disinterested).
I have to disagree with almost all of this. First off there was no one who thought the "c" stood for "cheap." Second, I don't think anyone at Apple particularly cards that the stock dropped. If Apple choose the right price points, etc. the new phones will be a huge hit and the stock price will react accordingly.
I also don't think it will be a "problem" if the 5c ends up being discounted in a few months--unless it doesn't sell well before that. It's very possible that it'll be a big hit at $99 and discounts in 3-6 months to make it "free" will cause a second surge in sales. I'm willing to wait and see (and I do have a significant--for me--investment in AAPL, so I'm not disinterested).
I agree with you. Let's face it... out of the millions of people that might buy this phone, how many even knew about the 5C designation. How many even read any tech analyst comments. A few people "might" have heard that Apple is bringing out a "cheaper" phone, and it did.
The 5C is what it is and the market will decide if it's worthy on its own merits... not on what some tech analyst said 6 months ago.
Yeah, no.
Why do you think no preorder for the 5s is a good thing? Having that option seems to have made the 4S and 5 launches a lot smoother. The only idea I've got (other than a silly notion that Apple actually WANTS long lines) is that they've had production issues and that if they took any significant number of preorders they might not have many available on launch day.
The lines at the stores will shut up the media whiners going "Look NO lines! Apple is Doomed!" When Apple deliberately and specifically prevented lines to avoid the previous riots being repeated in China everyone bit on that storyline.
You can still order it on launch day from the comfort of your home and you'll get it a few days later than you normally would, is that such a big deal?
No, you don't. Your estimates are wrong in many respects.
1. There undoubtedly more than $20 in direct costs. I listed a bunch of costs that need to be included.
2. You simply made up a number for BOM without any evidence. iSuppli has no idea what Apple pays for things - they simply made them up. Then you took iSuppli's made up numbers and made your own arbitrary changes.
3. SOME selling and admin costs can be included in COGS. If the cost can be directly assigned to the product sale, it can be included in COGS rather than overheads. A few examples of SGA costs that are sometimes included in COGS: commissions, rebates, promotions (like BOGO which Apple doesn't use), and so on. Some admin costs can also be included in COGS, as well, if they can be directly attributed to a product.
In the end, you have no idea what Apple's margins are on this product.
For those who've seen any of the People of WalMart photos, your question answers itself.
Why are you attacking me?
I
I linked to a site that providesi (BOM) parts, mfg, and packaging costs -- thought to be high (conservative) by many.
Having 11 plus years experience as an Apple reseller, I think I understand how Apple and Apple resellers work.
Yes, I have no idea on Apple's margins... But , based real-life experience, I will guess that my estimates are better than yours..
Prove me wrong!
I agree... and stated the same in my post the morning after the event.
The 5C is the "Phil Schiller's iPhone for marketing " and has price-flexibility built in for any time, place or provider selling it around the world.
Soft sales months, locations, or countries? Promotions with an eye to the 40% profit margins Apple demands.
Note: why would Apple ever lower the price of the phone on launch when history tells them that they have a difficult time keeping up with demand and that the phone sells quite well at full price the first 3-6 months after the launch? Why would Apple not take advantage of that very unique position and throw money down the toilet?
Also, never forget: the very first iPhone had a price adjustment a few months after it's debut. This, after they "cleaned up" selling to the early adopters and loyal fans that saw that getting in early was worth the extra money.
The 5C is going to do very well at this price, and when the numbers start to slide, say in the Spring... it will come down in price without a doubt in my mind.
Couldn't have said it better!