Apple to see near 50% gross margin on each iPhone sale

Posted:
in iPod + iTunes + AppleTV edited January 2014
Each iPhone sold will generate nearly a 50 percent gross margin for Apple Inc. and partner Cingular Wireless, giving the companies a hefty profit, as well as plenty of room for future price cuts, according to research firm iSuppli.



Based on a preliminary functional Bill of Materials (BoM) estimate, the firm calculates that the 4Gbyte version of the Apple iPhone will carry a $229.85 materials and manufacturing cost and a $245.83 total expense, yielding a 50.7 percent margin on each unit sold at the $499 retail price.



Meanwhile, it said the 8GByte model will sport a $264.85 materials cost and a $280.83 total expense, amounting to a 51.3 percent margin at the $599 retail price.



"While iSuppli has a high degree of confidence in its conclusions, these figures are considered preliminary until we perform an actual physical teardown and analysis of the iPhone," the firm said in a report released Thursday.



The firm added that such a strong hardware profit is par for Apple's course, with the company having achieved similar margins of 45 percent and more in products including the iMac and iPod nano. But with extensive competition in the music-phone market, it may need to cut into those margins to reduce pricing in the future.



"With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, PhD, director and principal analyst with iSuppli.



iSuppli noted in its report that Apple is due to face a bevy of competitors in music phones, with 835 models expected to be introduced by various competitors in 2007. It estimates that 14 music-enabled mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola Inc., Samsung Electronics Co. Ltd. and LG.







"In terms of features and form factors, the closest competitor to the Apple iPhone is LG?s KE850, which will ship later this year," said Tina Teng, analyst, wireless communications, for iSuppli. Other phones with similar characteristics reportedly include Nokia?s N800, although that product is aimed more at niche markets than the broad-appeal Apple iPhone, the analyst said.



Shipments of music-enabled mobile phones will rise to 618.1 million units in 2007, up 39.9 percent from 441.7 million units in 2006, iSuppli predicts. By 2010, it sees shipments of such phones will increase to 1 billion units.



"iSuppli defines music-enabled phones as those supporting music file formats, and not necessarily as those tailored specifically for music playback," the firm said. "Thus, this number is much larger than the total available market for music-oriented handsets like the Apple iPhone."



Apple?s goal is to capture 1 percent of these unit sales, which seems attainable, according to Rebello.
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Comments

  • Reply 1 of 57
    jlljll Posts: 2,709member
    Are those numbers including development costs and other costs related to the product?
  • Reply 2 of 57
    It's hard to compare the iPhone to other phones primarily cause there's nothing else like it. Feature to feature comparisons make it look like other phones are on the same level, because the only difference is the iPhone has a "multi-touch screen interface". But that effects virtually all the other features, making it an extraordinary device.



    I think that fact is not yet realized by the mass public. Once everyone has seen what this thing can do I think it will explode past 1 percent. Maybe... 3 or 4?



    To clarify: I think it will be 3 or 4 since Apple said they're estimate of 10 million is through 2008. I think they'll make over 1% in 07 alone.
  • Reply 3 of 57
    it's a great phone, but way to expensive right now to steal too much market share from the big players out there.



    I love the phone, but can't see myself spending $500-$600 on a phone after I sign a 2-year contract.

    Other than fanboys or people with lots of extra cash lying around, who would spend that much on a phone?



    $300-$400 is the absolute most I can see myself spending on a phone.

    Hopefully, the price comes down sooner than later.



    Aside from that, this Cingular lockdown is a huge deal breaker.



    Did Apple think this through?



    I don't think they will sell 10 million iPhones by the end of 2008, unless they make some serious changes or come out with new cheaper models.
  • Reply 4 of 57
    cato988cato988 Posts: 307member
    i think 1% in '07 is completely unreasonable if they are indeed exclusive with cingular. Cingular has a bit over 50 million users.



    that means that 1/5 cingular customers will have an iphone by the end of '07.



    You have to remember how absolutely gigantic the cellphone market is. 3-4% is ALOT of phones compared to what 3-4% of gaming consols is



    1% is a good goal for '08 and theres nothing wrong with exceeding your goal
  • Reply 5 of 57
    chuckerchucker Posts: 5,089member
    Quote:
    Originally Posted by Cato988 View Post


    i think 1% in '07 is completely unreasonable if they are indeed exclusive with cingular. Cingular has a bit over 50 million users.



    that means that 1/5 cingular customers will have an iphone by the end of '07.



    Except for this thing called "attracting new customers". Which, come to think of it, is obviously what Cingular is trying to do?
  • Reply 6 of 57
    i Can't believe that there is practically a 50% cost for an iPod, our margin is so tightthat when we sell one to a customer who uses a credit card we actually loose money on the sale
  • Reply 7 of 57
    Quote:
    Originally Posted by JLL View Post


    Are those numbers including development costs and other costs related to the product?



    Of course not! We all know (or should know) that developing a new product is VERY expensive, even if the individual components are not. If you ask me, a 50% margin is pretty steep, but remember Apple does have to cover the costs of developing the product. Just as we witnessed with the iPod, every new generation should become more affordable.
  • Reply 8 of 57
    jlljll Posts: 2,709member
    Quote:
    Originally Posted by baranovich View Post


    Of course not! We all know (or should know) that developing a new product is VERY expensive, even if the individual components are not. If you ask me, a 50% margin is pretty steep, but remember Apple does have to cover the costs of developing the product.



    Plus there are shipping costs, marketing costs, support costs.
  • Reply 9 of 57
    kreshkresh Posts: 379member
    I used to work for Cingular before changing companies, I work for one of the 2 top National CDMA carriers. I'm a regional director of sales for 2 states.



    When I was with Cingular (2 years ago) handsets costing more than $200 to the end-user made up 7% of sales.



    They have grown a little in the past two years, but Apple is still going to have a hard time.



    Let's see. 58 million subscribers and figure 10% capture rate instead of 7%, that works out to 5.8 million handsets.



    That's 5.8 million handsets if Apple sells every handset over $200 (After discounts and contracts) at Cingular. That's just not going to happen. If they capture half of the high end market at Cingular that would only be 2.9 million handsets.



    By trying themselves exclusively to Cingular and one or two carriers in Europe, I have a hard time believing Apple will even sell 10 million iPhones, much less beat their predictions as some analysts are saying.
  • Reply 10 of 57
    Dont forget that Steve said 1 percent of a billion phones - which is 10 million - WORLDWIDE. He was not refferring to Cingular only. That is why he said by the end of 2008, he aims to have sold 10 million iPhones. By the end of 2008 I'm sure there will be cheaper models around. As for the price.. sure $500 for a phone sounds like a lot (especially for americans who are not used to actually paying full price for their phones) But what if I offered you a special bundle deal. An 8GB widescreen ipod (3.5" sceen) and a very good smartphone for $600 bucks. You'd probably think it was a pretty good deal.



    As for the article itself.. what is the point of putting this kind of detailed analysis out before knowing anything about the product for sure? It's all speculation. I bet they dont even know for sure what processor is inside. How can they hope for any sort of accuracy? It feels like a headline grabbing ploy more than anything else.
  • Reply 11 of 57
    jlljll Posts: 2,709member
    Quote:
    Originally Posted by kresh View Post


    By trying themselves exclusively to Cingular and one or two carriers in Europe, I have a hard time believing Apple will even sell 10 million iPhones, much less beat their predictions as some analysts are saying.



    Tying to a carrier is not normal in Europe and I certainly don't hope that they will do that.
  • Reply 12 of 57
    kreshkresh Posts: 379member
    Quote:
    Originally Posted by jbella View Post


    Dont forget that Steve said 1 percent of a billion phones - which is 10 million - WORLDWIDE. He was not refferring to Cingular only. That is why he said by the end of 2008, he aims to have sold 10 million iPhones. By the end of 2008 I'm sure there will be cheaper models around. As for the price.. sure $500 for a phone sounds like a lot (especially for americans who are not used to actually paying full price for their phones) But what if I offered you a special bundle deal. An 8GB widescreen ipod (3.5" sceen) and a very good smartphone for $600 bucks. You'd probably think it was a pretty good deal.



    As for the article itself.. what is the point of putting this kind of detailed analysis out before knowing anything about the product for sure? It's all speculation. I bet they dont even know for sure what processor is inside. How can they hope for any sort of accuracy? It feels like a headline grabbing ploy more than anything else.



    But how many of those billion phones worldwide are not free (or subsidized to the point of being free)? My guess is 50 to 55%. Another 30 to 35% cost less than $200 after subsidies.



    So that brings the pool down to 100 million handsets or less. Then you restrict it to select carriers on top of that.



    People are blown away by the billion handset market, but that's just obfuscation. It sounds better to say 1% of worldwide, 1 billion, handset market instead of 10% to 15% of the worldwide highend handset market - they are the same thing but it sounds better saying it the way Apple did. I'm not sure that the number is even reachable if there are only one or two carriers per region selling the phone worldwide.





    edit: Cheaper models might help penetration. I didn't read that part of your post
  • Reply 13 of 57
    kreshkresh Posts: 379member
    Quote:
    Originally Posted by JLL View Post


    Tying to a carrier is not normal in Europe and I certainly don't hope that they will do that.



    Do you think every European carrier is going to change their network (voicemail change, plus potentially others) just to get a chance to sell the iPhone. If the carrier were to get an exclusive like Cingular did, then they might.



    The iPhone requires a change to existing networks.
  • Reply 14 of 57
    "Each iPhone sold will generate nearly a 50 percent gross margin for Apple Inc"



    So that's over $300 on each 8GB phone. Man, and after the keynote all I could think was "if only it was $150 less".



    And they think they are going to sell close to 6 million phones. Do the math. $300 times 6 million = 1.8 Billion Dollars (as I hold my pinky to my mouth)



    I expect some kick ass software in the next iLife bundle. And more than 1GB on my iDisk.
  • Reply 15 of 57
    Sorry, but there's nothing like the iPhone in the US. If u look at Asian Markets, the iPhone is actually behind. Go to foxnews.com and see how advanced the phones are over there.

    Quote:
    Originally Posted by DeaPeaJay View Post


    It's hard to compare the iPhone to other phones primarily cause there's nothing else like it. Feature to feature comparisons make it look like other phones are on the same level, because the only difference is the iPhone has a "multi-touch screen interface". But that effects virtually all the other features, making it an extraordinary device.



    I think that fact is not yet realized by the mass public. Once everyone has seen what this thing can do I think it will explode past 1 percent. Maybe... 3 or 4?



    To clarify: I think it will be 3 or 4 since Apple said they're estimate of 10 million is through 2008. I think they'll make over 1% in 07 alone.



  • Reply 16 of 57
    kickahakickaha Posts: 8,760member
    I disagree with that assessment of Asian phones - while they are very feature-rich, they still have physical form factors that limit what they can ultimately do, and do well.



    The iPhone has no such restriction.



    It's like comparing an original Mac from 1984 with an IBM 360 mainframe sold the same year. The mainframe can do a lot more at that moment, but the Mac has more potential. That's where we are right now with the iPhone. Want to do, well, anything? Write an app.



    This isn't a phone, it's a handheld computer. It's actually kind of annoying that they're selling it as a phone, IMO. (OTOH, if they sold it as an Apple Handheld, then everyone would assume it was Mac only, blah blah blah, so this way they generalize it into a consumer electronics device that doesn't have the perceptual baggage.)



    Imagine if they had unveiled this as a 3.5" UMPC for $600 that can *also* use cell networks for data and voice? Because that's what it is.



    Anyway, it's a 'phone' so that's how it's going to be initially compared, but it's really a hell of a lot more. I see the features and functionality of this puppy exploding to do whatever any other smartphone can do, and then far exceed them.
  • Reply 17 of 57
    Quote:
    Originally Posted by kresh View Post


    Do you think every European carrier is going to change their network (voicemail change, plus potentially others) just to get a chance to sell the iPhone. If the carrier were to get an exclusive like Cingular did, then they might.



    The iPhone requires a change to existing networks.



    Yes, I do actually. If Apple doesn't go for a carrier exclusive deal, I know for certain that regardless of the changes required to the network, if I was the CEO of any carrier in (for example) the UK, I wouldn't want to be the only one NOT carrying the iPhone. I think they'll flock around it like bees around honey, and be practically falling over themselves to modify the network for visual voicemail. Then they can tout this as a feature of their network and other phone manufacturers will soon start offering it.
  • Reply 18 of 57
    I also disagree with your assessment of phones available in the asian market. Sure a lot of them have nicer features because they have a better network available to them, and of course they are willing to pay more. I always say that it's impossible to compare the iPhone to other phones on a simple feature by feature basis. In software especially implementation matters a lot. So while two phones you are comparing might have the 'Web Browser' feature checked, is that phone's web browsing experience as good as the iPhone? Not many phones have a 3.5" 160ppi screen.
  • Reply 19 of 57
    Quote:

    It estimates that 14 music-enabled mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola Inc., Samsung Electronics Co. Ltd. and LG.



    A pretty touch screen does not make a phone comparable to the iPhone.

    Does it have Multitouch?

    Does it have a high resolution screen?

    Is the hardware and software integrated by the same company?

    Does it run Mac OS X?

    Has thousands of hours gone into refining every aspect of the UI by some of the most talented designers in the world?



    Steve Jobs said he wants to sell 10 million iPhones in one year from when the iPhone goes on sale. That means 10 million iPhones by June 2008.
  • Reply 20 of 57
    Quote:
    Originally Posted by Kickaha View Post


    It's like comparing an original Mac from 1984 with an IBM 360 mainframe sold the same year. The mainframe can do a lot more at that moment, but the Mac has more potential. That's where we are right now with the iPhone. Want to do, well, anything? Write an app.



    This isn't a phone, it's a handheld computer. It's actually kind of annoying that they're



    how is that different from any other smarthpone, symbian, brew or windows ce , linux or one of the other many phone/computer combinations that already have had SDKs available for ages, with equally as powerful cpus and gpus ? some phones have more graphics power than the desktops did a few years ago, they have 3d acceleration, custom dsps, programmable shaders, powerful cpus and lots of memory and storage.



    why does it have more potential than any other existing phone with a touchscreen, cpu and programmable os ?, not that i think a touchscreen is a great thing for a phone, but some do.



    its got the typical apple polish, but there is nothing special about the hardware, the touchscreen might be innovative, but thats not revolutionary, just better , and only perhaps at that , personally i've never cared for a touchscreen phone.



    your baseline comparison is way off, the difference is just the design.



    Quote:

    A pretty touch screen does not make a phone comparable to the iPhone.

    Does it have Multitouch?

    Does it have a high resolution screen?

    Is the hardware and software integrated by the same company?

    Does it run Mac OS X?

    Has thousands of hours gone into refining every aspect of the UI by some of the most talented designers in the world?



    a pretty touchscreen doesn't make a phone either.

    there are lots of high resolution phones available, even with 32 bit colour.

    qualcomm integrates its hardware and software, as does sony ericsson, microsoft and nokia

    there are phones that run linux, its not macosx, but the iphone doesn't run it either, but thats neither here nor there, if you base your phone choice on the os you run, then you're not in a real comparison mode, you're just sticking with what you know/like.

    sony have put thousands of hours into hardware and ui design as well, thats why apple pinched a bunch of its vaio design people a few years.
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