iPhone 5s demand healthy, margins for 5s and 5c higher than iPhone 5, analyst says

Posted:
in iPhone edited January 2014
Apple's new flagship iPhone 5s and mid-range iPhone 5c contribute more value to Cupertino's profit margins than their predecessor, the iPhone 5, according to one Wall Street analyst.

iPhone 5s and 5c margin
iPhone 5s and 5c margin relative to iPhone 5 | Source: Deutsche Bank and IHS


A report provided to AppleInsider Monday by Chris Whitmore of Deutsche Bank suggests that Apple's new iPhones may yield higher margins than the previous generation, with the 16-gigabyte iPhone 5c providing a 50-basis-point, or 0.5-percent, bump and the 16-gigabyte iPhone 5s driving a full 1 percent increase as compared to the same capacity iPhone 5. As a result, Whitmore said he expects the handsets to be "very beneficial" to Apple's bottom line, despite the currently limited supply of the iPhone 5s.

Whitmore has based the margin profiles of the devices off of third-party teardown data from IHS, which pegs the iPhone 5s bill of materials, or BOM, at $199 versus $207 for the iPhone 5, even with the addition of the new Touch ID fingerprint sensor and redesigned, sapphire crystal home button. Whitmore noted that "the incremental cost for the fingerprint sensor is entirely offset by cost improvements across most other categories," notably a $3 drop in the cost of the Retina display and a $5 decrease for the Sony camera module.

The iPhone 5c comes with a significantly improved $174 BOM, according to the analysis, a 16 percent drop from the iPhone 5. The decrease is attributed largely to the iPhone 5c's plastic rear housing, which contributes $13 to the difference. Lower prices for the camera and processor, which are unchanged from the iPhone 5, bring a further $7 and $4.50 reduction, respectively.

There seems to be some disagreement from competing analysts about exactly how much it costs Apple to make the new iPhones. A similar report from UBS, obtained by The Wall Street Journal, put the BOMs at $213 and $156, respectively, for the iPhone 5s and 5c. UBS believes profit margins for the two devices to be between 45 to 55 percent, a difference partly attributable to higher manufacturing costs, which include freight in UBS's calculation.

iPhone 5s stock out worldwide
iPhone 5s out-of-stock percentage in the U.S., U.K., and Australia | Source: Deutsche Bank


A point which seems universally accepted, however, is that demand for the iPhone 5s remains strong, despite sharp constraints on supply. Whitmore checked 20 Apple retail stores in the United States, the United Kingdom, and Australia, and responses indicate that iPhone 5s units are selling out nearly as fast as they arrive. Stores are advising customers to call ahead to check stock, and to shop early in the morning in order to have the best chance to find their device in stock.

According to the report, one customer service representative advised Whitmore that "demand's been so high [for the iPhone 5s] that we run out of stock in about 30 minutes." Online channel checks returned similar results for the iPhone 5s, with lead times from Apple and its major U.S. carrier partners at approximately 38, 21, and 24 days for the gold, space gray and silver models, respectively.

iPhone 5c units, conversely, continue to show immediate availability in all channels, both brick-and-mortar and online, with all colors and storage capacities well represented. Whitmore noted that some Apple retail associates reported customers upgrading from iPhone 4 or 4s units were often willing to upgrade to the iPhone 5c rather than wait for availability of the iPhone 5s, saying "the 5C is quite good and a lot of customers who can't get the 5s haven't minded upgrading to a 5c."

Whitmore believes that the lean inventory of the iPhone 5s, which was released alongside the iPhone 5c to record-breaking opening weekend sales just 10 days ago, combined with the rumored October iPad refresh that is expected to bring a redesigned iPad 5, positions Apple "to deliver a strong holiday quarter."
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Comments

  • Reply 1 of 36
    I am sure, this will destroy Apple once and forever!




    /s
  • Reply 2 of 36
    slurpyslurpy Posts: 4,984member
    So, Apple has.both higher sales AND higher margins on their new phones compared to the 5. But will that satisfy the bloodsucking analysts/investors that were assuming the opposite? Of course it won't.
  • Reply 3 of 36

    Apple should invite all the analysts and have a tea break.  

    And present a small paper, at the end of that happy-tea-party, that says... 

     

    Quote:

    "You morons..."


  • Reply 4 of 36
    rogifanrogifan Posts: 10,669member
    I'm not sure how you can get margins from estimated BOM. 5C might be cheaper to manufacture than the 5 was but there are marketing costs around the 5C that a cheaper 5 would not have had. The shameful thing is media outlets equating these BOM estimates as the total cost of the phone, implying huge markups by Apple. Even CNBC did this without explaining that these estimates don't include any R&D, administrative costs , free software, etc. Of course CNBC should know better, but headlines like that make for good click bait.
  • Reply 5 of 36
    There seems to be some disagreement from competing analysts about exactly how much it costs Apple to make the new iPhones.

    That one takes the cake!

    Anyhoo, supposedly the jump to the 32GB model only costs Apple $20. And $29 for the 64GB chips. Though I hear the smallest storage is mostly sold, and that is indeed what I see around me, possibly because some telco's only sell the 16GB version
  • Reply 6 of 36
    Quote:
    Originally Posted by Rogifan View Post



    I'm not sure how you can get margins from estimated BOM. 5C might be cheaper to manufacture than the 5 was but there are marketing costs around the 5C that a cheaper 5 would not have had. The shameful thing is media outlets equating these BOM estimates as the total cost of the phone, implying huge markups by Apple. Even CNBC did this without explaining that these estimates don't include any R&D, administrative costs , free software, etc. Of course CNBC should know better, but headlines like that make for good click bait.

     

    The chart clearly says "contribution margin".  Contribution Margin is simply Price Minus Variable Cost.  They've expressed this as a percentage, so it's (Price-Variable Cost)/Price.   

  • Reply 7 of 36
    sennensennen Posts: 1,461member
    Ordered 8 days ago from Apple online, just shipped from Shenzhen. Looking forward to it, just a shame it's for the better half...
  • Reply 8 of 36
    MacProMacPro Posts: 17,169member
    sennen wrote: »
    Ordered 8 days ago from Apple online, just shipped from Shenzhen. Looking forward to it, just a shame it's for the better half...

    You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last :)
  • Reply 9 of 36
    jragostajragosta Posts: 10,473member
    jamesmac wrote: »
    The chart clearly says "contribution margin".  Contribution Margin is simply Price Minus Variable Cost.  They've expressed this as a percentage, so it's (Price-Variable Cost)/Price.   

    Exactly. 'Contribution Margin' may be the easiest number to calculate - and is even easier than gross margin. There's no need to consider R&D, software, admin costs, etc as Rogifan suggests.
  • Reply 10 of 36
    I don't find the fact that the easier to manufacture and stock 5c is in high demand all that shocking. You figure, last year there was a healthy demand for the 4s even along side the 5, and IMHO, there is a greater user noticeable difference between the 4s and 5 than there is between 5c and 5s (larger screen and LTE). And since most average consumers up for renewal have had their iPhone for 2 years, they are coming from the 4 and 4s and the 5c will be enough for them
  • Reply 11 of 36
    Did they factor in the cost of Authentec? The cost of R&D (as said) all the iCloud servers and related services?

    Interesting is the fact that the iPhone 5S and 5C generate more revenue for Apple, which is good. But never mix revenue and profit...
  • Reply 12 of 36

    Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  

  • Reply 13 of 36
    piotpiot Posts: 1,346member
    Quote:

    Originally Posted by JamesMac View Post

     

    I'm starting to think the 5C has not sold well at all.  


     

    Compared to what?

  • Reply 14 of 36
    rogifanrogifan Posts: 10,669member
    jamesmac wrote: »
    Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  
    How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.
  • Reply 15 of 36
    Quote:

    Originally Posted by digitalclips View Post





    You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last image

     

    Good attitude! I love it! :)

  • Reply 16 of 36
    rogifanrogifan Posts: 10,669member
    jragosta wrote: »
    Exactly. 'Contribution Margin' may be the easiest number to calculate - and is even easier than gross margin. There's no need to consider R&D, software, admin costs, etc as Rogifan suggests.
    I wasn't referring to this chart. I was referring to the general reporting every time these BOM estimates come out.
  • Reply 17 of 36
    Quote:

    Originally Posted by Rogifan View Post





    How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.

     

    The 4s wasn't marketed as a new phone.

  • Reply 18 of 36
    Quote:

    Originally Posted by Rogifan View Post





    How in the world can we know? People are just assuming because its in stock that means its not selling. But maybe the 5C wasn't intended to be a phone that sells out right away. Maybe it's intended to be a phone that has steady sales throughout the year. I don't remember all this concern about how well the iPhone 4S was selling after the iPhone 5 was announced.

     

    I don't know how many times this has to be explained......one more time with feeling....

     

    The market is looking at sales during the launch weekend of 9 million units, a huge increase from prior launches.  The big question is, how many were actually sold to consumers.  The range seems to be 6.5 million to 9 million units.   You've got some analysts swearing the number is 6.5 million and others who seem to think it's closer to 9.  

     

    Just to be crystal clear, if it really is 6.5 million, then adding in the 4S sales last time, Apple isn't growing and the stock will be in bad shape; conversely, if it really is 9 million, things look good.    If you look at where the stock is trading, it didn't get much of a bounce, so my gut tells me that the market is questioning the number, but I suspect we'll be waiting until 3Q results until there is clarity.

  • Reply 19 of 36
    jragostajragosta Posts: 10,473member
    jamesmac wrote: »
    Notice the title of this article carefully.   I'm starting to think the 5C has not sold well at all.  

    Based on what?

    The lowest estimates for the 5C are around 2 M units. Keeping in mind that the 5C is essentially last year's phone (with a few minor improvements and a new case). How many previous generation phones have ever sold 2 M in one weekend?

    Heck, other than the iPhones and one or two Galaxy models, I don't think even any newest generation phones sold that many.

    Your post is an example of the kind of ridiculous unrealistic expectations that Apple has to deal with.
  • Reply 20 of 36
    You do that too? I always have the 'better half's cast off' … so this Christmas i'll have an iPhone 5 at last :)

    I'm in the fortunate situation where I use my upgrade this year, then use my daughters upgrade next year, so on and so forth. She's 13 so it's a great deal for us both :-)
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