Apple's iPhone margins estimated in excess of 50 percent

Posted:
in iPhone edited January 2014
Before royalties and logistics expenses are factored in, Apple Inc. stands to generate gross margin in excess of 50 percent on each 8GB iPhone sold at $599, according to one market intelligence service.



El Segundo, Calif.-based iSuppli recently conducted a teardown of the high-end Apple handset, revealing several "surprise" component suppliers, such as Infineon Technologies AG, National Semiconductor Corp. and Balda -- in addition to established component makers like Samsung Electronics Co. Ltd.



"iSuppli?s teardown, conducted this weekend, determined that the 8Gbyte version of the iPhone has a total hardware Bill-of-Materials (BoM) and manufacturing cost of $265.83, generating a margin in excess of 55 percent on each 8Gbyte iPhone sold at the $599.00 retail price" said Andrew Rassweiler, principal analyst for iSuppli.



Of the new suppliers to the iPod/iPhone family, Infineon is among the biggest winners in terms of semiconductor content, the firm said. The German-based parts maker is believed to be supplying the iPhone's digital baseband, radio-frequency transceiver and power-management devices, providing much of the core communications capability of the handset. Altogether, iSuppli estimates that Infineon?s silicon content accounts for $15.25 worth of the iPhone?s BoM, representing 6.1 percent of the 8Gbyte model's total cost.



For its part, National?s contribution to the iPhone BoM is relatively small with its lone chip in the product costing $1.50, representing less than 1 percent of total product cost. However, iSuppli said the part -- a serial display interface -- is an important design win for National, which has never held a seat in an Apple iPod product. The chip, which connects the display to the graphics controller, uses National?s Mobile Pixel Link standard, which the company has been attempting to promote for use in mobile devices.



"This is a significant win for National in a high-profile platform that is expected to ship in large volume," Rassweiler said.



Meanwhile, the display module in the iPhone model torn down by iSuppli was provided by Balda of Germany in association with its partner TPK Holding of China. The module costs an estimated $27, according to the firm, representing 10.8 percent of the 8Gbyte model?s cost. On the other hand, the iPhone?s touch-screen display itself is reportedly supplied by multiple sources: Epson, Sharp and Toshiba Matsushita Display Technology Co. Ltd. The cost of the unusually thin screen is estimated at $24.50, representing 9.8 percent of the 8Gbyte version?s costs.



Perhaps the biggest winner among all the iPhone's component suppliers, according to iSuppli, is Samsung. The South Korean electronics giant supplies the iPhone?s applications processor -- as was reported by AppleInsider back in January -- which includes an ARM RISC core and costs approximately $14.25 in both versions of the iPhone.



Samsung is also contributing the handset's NAND flash memory and DRAM. In the 4Gbyte version, Samsung has $24 worth of NAND flash, and $48 in the 8GByte version. For both versions, Samsung also supplies 1Gbit of Double Data Rate SDRAM worth $14.00.



In total, iSuppli estimates that Samsung accounts for $76.25 worth of semiconductor content in the 8Gbyte version of the iPhone, giving the company a 30.5 percent share of the product's hardware cost?the largest total of any single supplier.



Other companies scoring design wins in the iPhone include: Wolfson, which continues to maintain its design win for the audio codec; CSR plc, which supplies the iPhone Bluetooth silicon costing $1.90; and Marvell, which is contributing a Wi-Fi baseband chip costing $6.00.







iSuppli believes that sales of iPhone, which kicked-off with a bang, will continue at a phenomenal rate. The firm estimates shipments of the inaugural Apple handset to reach 4.5 million units this year, expanding by a factor of nearly seven to reach more than 30 million by 2011.



Additional iPhone component suppliers were revealed in a teardown by Semiconductor Insights, which was covered by AppleInsider on Monday.
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Comments

  • Reply 1 of 45
    flinch13flinch13 Posts: 228member
    Upon reading this, I asked myself, "Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"



    I decided NO. I'm not upset. I didn't get an iPhone, #1, so this doesn't really affect me all that much. I think this is actually good news.



    Apple is making more of a profit off of this device. That means more money into R&D on making the iPhone better and cheaper to produce (i.e. less expensive for me when I can actually afford one!)



    Apple typically doesn't make such high profit margins; I'm sure that some PC companies make higher ones on a regular basis. I'm sure the true cost of producing the iPhone is higher than the stated cost of materials. You have to remember that manufacture and shipping costs money, as well as the years of development that went into this baby; the developers need to get paid for their work! It's likely that this is not the whole story.



    Basically, good for Apple. They can produce a product that people still want to buy by the hundreds of thousands, even when they mark it up by 50% of cost of parts. I admire that.
  • Reply 2 of 45
    I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.
  • Reply 3 of 45
    anantksundaramanantksundaram Posts: 20,225member
    Quote:
    Originally Posted by Rooskibar03 View Post


    I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.



    Yes. The 55% figure is just the "gross margin" (i.e., revenues minus direct costs as percent of revenues). You have to add to it the indirect costs and overheads (broadly speaking, "selling, general, and admin" expenses, which will also include R&D). At the end, the profit (net income) margin for this product will be somewhat high, but my guess is that it will be closer to 20+%, which is not outrageous for something of this caliber and in this luxury/premium product segment.



    But the stock being in such nosebleed territory ($126+ today!!!) is getting a bit worrisome.........
  • Reply 4 of 45
    mrjoec123mrjoec123 Posts: 223member
    Quote:
    Originally Posted by Rooskibar03 View Post


    I'm sure the 5 years of R&D and countless hours of overtime that SJ talked about will cut into the figure somewhat.



    Not to mention the salaries of every employee who will continue to work on software updates, bug fixes, etc.



    The bottom line is that we have no idea how much Apple spends on making an iPhone. iSuppli can add up the components and get a figure, but manufacturing any product is a lot more complicated than that.



    And even if the margin is 50% or more (I don't think it is) if the market is willing to pay it, then Apple has every right to charge as much as it wants.
  • Reply 5 of 45
    nagrommenagromme Posts: 2,834member
    Quote:
    Originally Posted by flinch13 View Post


    Upon reading this, I asked myself, "Should I be upset that Apple is making so much money off of this product? Is the consumer being taken advantage of?"



    Gross margin is calculated just the parts and does NOT include:



    The massive R&D costs to be recouped - hardware AND software - which continues into the future

    Massive legal and marketing and insurance costs

    Service and support costs

    Assembly of the parts (factories aren't cheap)

    Packaging, storage, distribution and transportation

    Running the retail and online stores



    If Apple were selling a baggie full of parts, which you then had to go pick up yourself one by one from different suppliers, and then no functionality had ever been developed for those parts so they were useless even if you could put them together, THEN Apple would be making that margin... except for the R&D to come up with the parts list and the marketing to let you know it was available
  • Reply 6 of 45
    jeffdmjeffdm Posts: 12,951member
    Doesn't it strike anyone as odd that tear-down pricing of non-Apple products seems to never reaches the public? Go to Engadget or some other non-Apple centric site and they will cover the Apple pricing, but never anything from Sandisk or Samsung that I remember.
  • Reply 7 of 45
    SpamSandwichSpamSandwich Posts: 33,408member
    Hey, if a simple-minded report from iSuppli can kick AAPL up to $126... who am I to complain? It just reflects badly on the real-world understanding of the costs of doing business by AAPL investors and stock speculators.
  • Reply 8 of 45
    citycity Posts: 522member
    With regard to profit margins, how much does it cost Mirocsoft to make a copy of Vista OS? Maybe $5US.
  • Reply 9 of 45
    louzerlouzer Posts: 1,054member
    Quote:
    Originally Posted by city View Post


    With regard to profit margins, how much does it cost Mirocsoft to make a copy of Vista OS? Maybe $5US.



    Probably the same amount it will take Apple to make a copy of Leopard.
  • Reply 10 of 45
    nagrommenagromme Posts: 2,834member
    Quote:
    Originally Posted by Louzer View Post


    Probably the same amount it will take Apple to make a copy of Leopard.



    That CAN'T be true. Why is Vista so much more expensive than OS X then?
  • Reply 11 of 45
    Quote:
    Originally Posted by anantksundaram View Post


    Yes. The 55% figure is just the "gross margin" (i.e., revenues minus direct costs as percent of revenues). You have to add to it the indirect costs and overheads (broadly speaking, "selling, general, and admin" expenses, which will also include R&D). At the end, the profit (net income) margin for this product will be somewhat high, but my guess is that it will be closer to 20+%, which is not outrageous for something of this caliber and in this luxury/premium product segment.



    But the stock being in such nosebleed territory ($126+ today!!!) is getting a bit worrisome.........



    Why is it a bad thing for the stock to be up high today? I have shares of AAPL and I kinda happy now!
  • Reply 12 of 45
    stompystompy Posts: 367member
    Quote:
    Originally Posted by AppleInsider View Post


    "iSuppli?s teardown, conducted this weekend, determined that the 8Gbyte version of the iPhone has a total hardware Bill-of-Materials (BoM) and manufacturing cost of $265.83,



    Unsurprisingly, today's figure is remarkably close to iSuppli's earlier estimate (when they didn't have an actual iPhone to take apart.)



    http://www.appleinsider.com/articles...hone_sale.html



    One of the iPhone chips must have gone up .98 since then.
  • Reply 13 of 45
    I've seen the price breakdown of some HTC phones.

    Quote:
    Originally Posted by JeffDM View Post


    Doesn't it strike anyone as odd that tear-down pricing of non-Apple products seems to never reaches the public? Go to Engadget or some other non-Apple centric site and they will cover the Apple pricing, but never anything from Sandisk or Samsung that I remember.



    That's a pretty nice margin, no matter how many years of research and developement went into it. On that note, it's a sweeet phone, and you're getting what you paid for. If you (general statement, not directed at the post I quoted) want it, get it, if you deem it too expensive, then don't.
  • Reply 14 of 45
    anantksundaramanantksundaram Posts: 20,225member
    Quote:
    Originally Posted by pazimzadeh View Post


    Why is it a bad thing for the stock to be up high today? I have shares of AAPL and I kinda happy now!



    Oh, don't get me wrong -- I too am very happy today as a stockholder.....



    But whether prices are justified by fundamentals is something I always worry about -- i.e., about how much of the growth prospects are already incorporated into in the stock price (say, at a level such as $120), and hence, how the slightest twitch in expectations can lead to massive price drops.
  • Reply 15 of 45
    Duh! Including the contract, your damn right apple is making that much off each iphone, I hope in a year or two they stop being greedy and bring down the price (which will really make it a hit)
  • Reply 16 of 45
    vinney57vinney57 Posts: 1,162member
    Quote:
    Originally Posted by digiology View Post


    Duh! Including the contract, your damn right apple is making that much off each iphone, I hope in a year or two they stop being greedy and bring down the price (which will really make it a hit)



    Please. Get a clue. The final margin will be in the 20 to 25% area that Apple (and any other sensible company) makes on all their products.



    Prices come down as the break points on components and manufacturing kick in, and the internals are redesigned for better assembly flow.



    As to making it a hit... its the fastest selling phone of all time.
  • Reply 17 of 45
    I thought the Razr what's the fastest selling phone of all time.

    http://gizmodo.com/gadgets/history-l...ast-274545.php

    Quote:
    Originally Posted by vinney57 View Post


    Please. Get a clue. The final margin will be in the 20 to 25% area that Apple (and any other sensible company) makes on all their products.



    Prices come down as the break points on components and manufacturing kick in, and the internals are redesigned for better assembly flow.



    As to making it a hit... its the fastest selling phone of all time.



  • Reply 18 of 45
    meelashmeelash Posts: 1,045member
    Quote:
    Originally Posted by BlackSummerNight View Post


    I thought the Razr what's the fastest selling phone of all time.

    http://gizmodo.com/gadgets/history-l...ast-274545.php



    Did you actually read that article, or just the headline?



    The iPhone is selling much faster than the Razr did. The article is forecasting (correctly, IMO) that it won't in the long term (two years) sell more than the Razr, despite its strong start.
  • Reply 19 of 45
    Did you read the article? It's not even close, depending on who's numbers you go by. It took 2 months for Razr to sell 750,000 units, who knows how many iPhones Apple has sold. The numbers are all over the board.

    Quote:
    Originally Posted by meelash View Post


    Did you actually read that article, or just the headline?



    The iPhone is selling much faster than the Razr did. The article is forecasting (correctly, IMO) that it won't in the long term (two years) sell more than the Razr, despite its strong start.



    I've seen numbers as low as 250K to highs of 700k. Apple has yet to release any official numbers.
  • Reply 20 of 45
    davegeedavegee Posts: 2,765member
    delete this dupe - when did we loose the ability to delete our own post?
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