Apple turning comparatively low profit on iPhone SE despite cheaper parts, analyst says

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in iPhone
In spite of recyling many parts from other iPhones, Apple's profit margin on the iPhone SE is relatively low next to the high-end iPhone 6s, a new analyst estimate suggests.




Based on a recent Chipworks teardown, Apple's bill of materials is probably about $260, RBC Capital Markets analyst Amit Daryanani argued in a memo obtained by AppleInsider. Given an entry retail cost of $399, that would indicate a profit margin of roughly 35 percent, lower than the mid-40s estimated for the iPhone 6s or the now-defunct 5s.

The SE's bill of materials is about 22 percent cheaper than the 6s, Daryanani noted. The analyst suggested that Apple likely renegotiated prices with its suppliers, taking advantage of excess parts inventory generated for the 6s.

In the Chipworks teardown, markings showed the sample phone's A9 chip was manufactured by TSMC around August or September of last year -- presumably for the 6s, not the SE. Many other parts are also identical to those in the 6 and 6s, such as modem and audio hardware.

The SE also uses the same display as the 5s, and similarly old Broadcom touchscreen chips.

"While most of the components in iPhone SE were previously used in either iPhone 6/6s or 5s, we think the prices for the same components have likely come down by >10% reflecting better scale and importantly price concessions from component providers, especially considering some of the components were likely from excess capacity for 6s," Daryanani wrote.

RBC is maintaining an "outperform" rating for Apple stock, along with a $130 price target. It's thought that the SE could generate $6.8 billion in revenue for Apple during calendar 2016.
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Comments

  • Reply 1 of 27
    robjnrobjn Posts: 203member
    They have hugely reduced R&D, hardly any new production tooling and will keep production of these parts at more steady quantity levels through the year.

    This means the parts will be cheaper to produce! And the phone is cheaper to develop. And production start-up is cheaper!

    Analysts don't understand manufacturing.

    The SE will have very good profit margin!
    mcarlingchiaradarthekatration alcornchipmoreckrobertwalterxamaxredgeminipa
  • Reply 2 of 27
    radarthekatradarthekat Posts: 3,005moderator
    The SE will have a two-year life cycle, and the 6S will likely be around for that long too in meaningful unit volumes.  The prices of the internals will come down in that timeframe, plus the SE will likely have a higher than $399 ASP.  So it's all good.

    Apple does a fairly straight-forward update to its 4" iPhone and it will generate $7 billion in incremental revenue, and $2.8 billion in incremental profits, per year for that phone's lifecycle, which will likely be two years, when it'll be replaced with an update.

     Tesla won't ship the first Model 3 for 18 months, will take two years after that to deliver all those pre-orders, and 180,000, at an average price (Musk estimates many buyers will add options) of $42,000, nets out to $7.56 billion.  One year of revenues for Apple's least expensive iPhone, and Tesla will be hard-pressed to make much profit at all on those cars.

    The Apple manufacturing and supply chain is as good as it gets.  A nearly automated money printing machine.
    mcarlingjmey267drewys808uffenmanpscooter63moreckxamax[Deleted User]
  • Reply 3 of 27
    robjnrobjn Posts: 203member
    The idea that Apple over-produced parts for the 6s just goes to show ignorance of how manufacturing actually works.

    The development of a new phone takes at least a year to 18 months. Apple knew a long time ago that they would use the A9 in the SE. The idea that they decided to put it in because they made too many for the 6s is nonsense!

    The manufacturing date on one chip in one phone is irrelevant, these parts do not necessary move through inventory on a 'first out - first in" basis.
    mcarlingrhinotuffmike1caliai46glindonrealisticpscooter63ration almoreck
  • Reply 4 of 27
    calicali Posts: 3,495member
    Recycling parts + that robot employee=
    PROFITS

    analysts know nothing except how to trash Apple's share price.
    mcarlingjmey267ration alcornchipmoreckxamax
  • Reply 5 of 27
    DrStockDrStock Posts: 2member
    robjn said:
    The idea that Apple over-produced parts for the 6s just goes to show ignorance of how manufacturing actually works.

    The development of a new phone takes at least a year to 18 months. Apple knew a long time ago that they would use the A9 in the SE. The idea that they decided to put it in because they made too many for the 6s is nonsense!

    The manufacturing date on one chip in one phone is irrelevant, these parts do not necessary move through inventory on a 'first out - first in" basis.
    Well since last the last quarter apple sold less iphones then anticipated. There is a possibility that there is over supply. I understand that apple would reduce orders to adjust supply. But just recently it was announced by a source in a supplier that there is a huge decrease in the iphone 6s which the iphone se is unable to offset aka this quarter might be worst than anticipated and again have an over supply. As tim cook said the next quarter is going to show negative growth but I fear that it might be worst than what he expects. P.S. I think the iphone se will sell but not enought.
    jonl
  • Reply 6 of 27
    This is business 101.  Premium products can collect higher margin.  Part of me questioned why Apple is chasing volume.  But really they are chasing adequate market share to spread the solid ecosystem across IMO.  The more users they can positively impact the better.  I am not sure how they account for R&D in the products they sell but that should be significantly lower for the SE.  I also think it is a smart move by Apple to take old tech and move it down to less expensive product lines.  They repackage it as a new product but for Apple they are stretching the technologies they put into premium products...very smart.  It also gives users who can't afford premium products to get into the Apple ecosystem.
    phone-ui-guyai46cornchipmoreckxamax
  • Reply 7 of 27
    mcarlingmcarling Posts: 1,106member
    The analysts don't know the prices that Apple pay to their suppliers, so 35% gross margin is a wildly speculative guess.
    jmey267phone-ui-guycaliration almoreckxamax
  • Reply 8 of 27
    linkmanlinkman Posts: 893member

    The article doesn't mention the $100 price differential between the 16GB and 64GB models. There is a large difference in the profit margin on the two.


    While there will be some cannibalism from 6s model sales, most of the purchases of the SE will be from customers that would not buy the larger models. All of the profit from the SE would have been unrealized profit for Apple.

    edited April 2016 phone-ui-guypscooter63ration alcornchipmoreckxamax
  • Reply 9 of 27
    postmanpostman Posts: 35member
    "Apple's bill of materials is probably about $260"

    Q: How can he know what Apple is paying for the parts?
    A: He doesn't.

    "that would indicate a profit margin of roughly 35 percent, lower than the mid-40s estimated for the iPhone 6s"

    Just what the stock market needs, another so-called Apple analyst guesstimating, conjecturing and making stuff up to support a completely unverifiable conclusion to justify a job... doing what exactly? Gossiping.
    phone-ui-guyai46ration alcornchipmoreckxamax
  • Reply 10 of 27
    Even if Apple did end up with a surplus of parts due to low sales of the 6S series, that they were able to not only turn them around and put them into a new phone AND target a vocal 4" iPhone market that hasn't yet upgraded because of a dislike for larger screens, speaks highly of Apple's business sense and ability to turn a perceived slump into a solid if not stellar profit margin. As a stock holder, I'm fine with that. 
    phone-ui-guyration alcornchipmoreckxamax
  • Reply 11 of 27
    WTF apple when selling through carriers or Best buy or B&H photo would also have to give them retailer  margins about 15-20% this analyst doesn't know whats he's talking about. 
    moreck
  • Reply 12 of 27
    mac_128mac_128 Posts: 3,399member
    The SE will have a two-year life cycle, and the 6S will likely be around for that long too in meaningful unit volumes. 
    I doubt that's true. It will most likely have a 3 or 4 year life cycle. The 6s is an amazing phone, and the 5s case is tried and proven, and short of some kind of major new wireless technology hitting the worldwide market in the next 4 years, the SE will serve the worldwide entry level market well for several years past its shelf life in the US, and other developed nations.

    I can see the SE staying around until it hits the $199 mark in the US, which means they might even keep it around 3 years in the US, until their next 4" phone depreciates to a similar level.

    For the first time, Apple is able to offer a high quality product for the same price as a cheap Android device, and that's an important milestone for expanding market share, without compromising their stated principles.


    radarthekatxamax
  • Reply 13 of 27
    jameskatt2jameskatt2 Posts: 707member
    Just another ANALyst trying to make profit for his investors by talking Apple stock down.

    Apple would only create the 6se if it could make the same or GREATER profit than the 5s.


  • Reply 14 of 27
    It's entirely possibly that Chipworks $260 estimate is fairly accurate, nobody excepting Apple really knows.  But the Chipworks estimate doesn't jive with several build estimates for the iPhone 6 (16 GB) that put the cost between $225 and $230, with build cost of the iPhone 5S (16 GB) at $215.

    An item by item comparison of the components used by the iPhone 5S (16 GB)  and iPhone 6 (16 GB) has the iPhone SE (16 GB) costing about $5 less than the iPhone 5S (16 GB).

    The most expensive iPhone 6, the 128 GB model, doesn't cost $260 to construct.
  • Reply 15 of 27
    512ke512ke Posts: 782member
    Analyst (to self): "OMG the SE seems to be selling well! I better pump out a story claiming the margins are bad, or the good news could drive the stock up. Oh wait, I have no evidence to support my allegation? Should that stop me from publishing it? Naaaah."
    cornchip
  • Reply 16 of 27
    I may be wrong, but I thought Wall Street was in favor of Apple selling less expensive smartphones to get higher sales volume. Now they're unhappy because Apple MIGHT be losing some profits. I don't think a company can have it both ways unless they don't pay workers a fair working wage and they don't like Apple doing that, either. I don't believe any analyst knows exactly what profit margins Apple is making from the iPhone SE because Apple is not going to tell anything about that. All I know is that the analysts are unhappy with Apple no matter what strategy Apple uses and that's just plain stupid. These analysts act as though they know everything about Apple profit margins but they're only making assumptions which could easily be wrong. If Apple wants to try to reach global markets it makes sense they would have to charge less. I could see the iPhone SE cutting into higher-cost iPhone market share but if people can't afford the more expensive iPhones then Apple should sell a less expensive model to at least expand the iOS ecosystem. No company can have it both ways. It's an essential compromise and Apple will benefit from the services used by those less costly devices.
    cornchip
  • Reply 17 of 27
    phone-ui-guyphone-ui-guy Posts: 1,018member
    DrStock said:
    robjn said:
    The idea that Apple over-produced parts for the 6s just goes to show ignorance of how manufacturing actually works.

    The development of a new phone takes at least a year to 18 months. Apple knew a long time ago that they would use the A9 in the SE. The idea that they decided to put it in because they made too many for the 6s is nonsense!

    The manufacturing date on one chip in one phone is irrelevant, these parts do not necessary move through inventory on a 'first out - first in" basis.
    Well since last the last quarter apple sold less iphones then anticipated. There is a possibility that there is over supply. I understand that apple would reduce orders to adjust supply. But just recently it was announced by a source in a supplier that there is a huge decrease in the iphone 6s which the iphone se is unable to offset aka this quarter might be worst than anticipated and again have an over supply. As tim cook said the next quarter is going to show negative growth but I fear that it might be worst than what he expects. P.S. I think the iphone se will sell but not enought.
    Apple didn't meet Analyst expectations. We don't know if they met their own since they don't guide on unit volume. What we do know is that they sold more iPhones than ever in that quarter, but it is somehow tarnished by barely missing the expected number. The supply chain rumors or individual supplier data doesn't tell the whole story. This is probably even more true given the introduction of the SE. We will really have to wait and see. 
    ai46ration alnetmage
  • Reply 18 of 27
    mike1mike1 Posts: 1,848member
    robjn said:
    They have hugely reduced R&D, hardly any new production tooling and will keep production of these parts at more steady quantity levels through the year.

    This means the parts will be cheaper to produce! And the phone is cheaper to develop. And production start-up is cheaper!

    Analysts don't understand manufacturing.

    The SE will have very good profit margin!
    Keep in mind that tooling costs have zero impact on Apple unlike most other companies. Based on the volumes, they effectively fully amortize the tooling in the first production run. Tooling and other development, sales and marketing expenses are not part of the BOM and do not factor into the supposed margin or lack thereof.

    Also, virtually all of Apples parts are custom in one way or another, so there's not always a cost benefit to using older parts since they are not off-the-shelf. For example, it may actually be less expensive to use the better camera that is already being produced en masse than to keep the older camera around just for this product.
    edited April 2016 ai46
  • Reply 19 of 27
    uffenmanuffenman Posts: 22member
    LAUGH OUT LOUD....the iPhone SE will be a gold mine.  It's a super solid tried true tested engineering masterpiece which will prove to be a quiet blockbuster. TRUTH = Analysts Opinion x Opposite

    rhinotuffration alxamax
  • Reply 20 of 27
    The SE will have a two-year life cycle, and the 6S will likely be around for that long too in meaningful unit volumes.  The prices of the internals will come down in that timeframe, plus the SE will likely have a higher than $399 ASP.  So it's all good.

    Apple does a fairly straight-forward update to its 4" iPhone and it will generate $7 billion in incremental revenue, and $2.8 billion in incremental profits, per year for that phone's lifecycle, which will likely be two years, when it'll be replaced with an update.

     Tesla won't ship the first Model 3 for 18 months, will take two years after that to deliver all those pre-orders, and 180,000, at an average price (Musk estimates many buyers will add options) of $42,000, nets out to $7.56 billion.  One year of revenues for Apple's least expensive iPhone, and Tesla will be hard-pressed to make much profit at all on those cars.

    The Apple manufacturing and supply chain is as good as it gets.  A nearly automated money printing machine.
    But yet the analysts and investors are happily kissing Elon Musk's buttocks saying how much of a genius he is and meanwhile the stock is soaring despite a nearly years wait for the first Model 3 to be delivered. We all know Tesla is burning through cash at a high rate, but since it's Elon Musk, no one is concerned anything could go wrong. They're basically calling Elon Musk a genius and Tim Cook an idiot for pursuing the same sales tactic. Apple isn't exactly strapped for cash and the iPhone market is far larger than the Tesla market. Let's face it. Tesla is blessed and Apple is damned in Wall Street's eyes.
    radarthekatcornchip
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