iPhone 3G could be the most profitable product Apple makes

“According to Porteligent and as reported by EETimes, the parts cost of the 3G iPhone may be as low as $100. That means that even at $199, Apple’s price includes a roughly 50% gross margin over its parts cost, which is in the ballpark of the gross margins on traditional iPods. If AT&T is adding in a $200 subsidy, then the iPhone 3G is anything but a a phone requiring a carrier subsidy. In fact, if these numbers are true and the carriers are subsidizing the phone, the iPhone 3G could end up being the most profitable product Apple makes. But more likely, this means that Apple has a lot more pricing flexibility than analysts have given them credit for,” Carl Howe blogs for Yankee Group.

Howe writes, “Apple’s 3G phone isn’t a loss-leader product needing subsidies to survivie. It’s designed to be an Anywhere phone that puts your online life, media, and connections in your pocket, yet be simple enough for your grandma to use. But for Apple, it’s a business platform designed to make money — and the details of that business design may surprise more analysts than the product itself.”

Full article – recommended – here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]

20 Comments

  1. AAPL . . . the equity the market LOVES to manipulate! One of these days, someone is going to jail over this kind of crap. But until then, try to stay in the saddle, everyone. It’s going to be a wild ride.

  2. “That means that even at $199, Apple’s price includes a roughly 50% gross margin over its parts cost…” And actually assembling those parts, the design and development work that went into it, the packaging and marketing cost how much? If you don’t know, you can’t speak about the *net* profit margin of the iPhone. And that is what matters.

    MDN mw: research – which cost how much?

  3. Why do people post this kind of nonsense? Imagine if you went to the Apple Store, put down $200 plus a two-year service contract, and got a box full of… iPhone parts, not assembled. And actually, you’d have to go to China to get them, because that $100 doesn’t include the price of shipping anything.

    Since nobody wants to buy disassembled iPhone parts in China, why do people make such a big deal of the “parts cost”? Apple has to go through a lot of trouble to get those parts into an iPhone, including all the design work and software engineering.

  4. First, I hear Touch prices will be dropping too. WOW,, just WOW.

    Its funny, Microsoft stock bounces up 10 cents and drops 20 cents and analysis say BUY BUY. Apple moves 20-30 DOLLARS and analysis say… SELL SELL the sky is falling. The sky is falling.

    Just decide for yourself. And enjoy the ride.

    en

  5. I love how these cost of parts analysts have no clue what Apple pays for parts, but make conclusions anyway.

    They allow nothing for OS development, the 6+ months spent preparing the iPhone SDK, developing and supporting the AppStore, iPhone customer support, etc., not to mention simple items like shipping, advertising, training AT&T;and Apple Store associates, etc.

    These numbers are such a guess that there’s no way they can be right. I wouldn’t surprise me if Apple had contracts for parts which were way below market value, but to declare that Apple is making a potential $300 gross profit on every iPhone is stupid.

    The iPhone is nothing without OS X, and that takes a huge amount of Apple’s time and resources.

  6. it is good new for the rest of us that shares has dropped because we can buy cheap and sell very high after June 11. ” width=”19″ height=”19″ alt=”smile” style=”border:0;” />

  7. There are several people here who (somewhat arrogantly) comment about assumptions on Apple’s profit margins (retail price + subsidy – parts cost), not exactly knowing what these estimates represent.

    Whenever analysts (i.e. companies that are paid a lot of money to advise those who don’t have time to do the research) talk about manufacturing costs, they generally mean the combined cost of wholesale parts/components, labour cost to assemble the parts into a finished product and shrinkwrap it, transportation cost to the national/regional distribution, as applicable (as sometimes, iPods ship directly from China to the consumer). All this cost is lumped together and represents manufacturing cost for a device. Obviously, research and development is not included, as it can never be quantified. Neither is it reported separately for any of their products. R&D;is a component of a company’s operating margin. The salaries for engineers, accountants, janitors and others come from this. All these people contribute to the company; some make sure the floors are clean, others design OS and hardware. Today, they’ll be working on the iPhone; next fall, they may be working on the Mac tablet.

    Therefore, the manufacturing cost estimates represent meaningful numbers to all who know how to interpret them. These numbers indicate today that iPhone profits for the first year may bring up to $ Billion (with a ‘B’) into Apple’s bottom line. That will essentially double company’s profits.

    Clearly the next cash cow.

  8. I have to say, the figure of $100 for manufacturing cost is unrealistically low, but so is the estimated $200 for the subsidy. The original iPhone was estimated to cost about $220 to build and ship. The original subsidy on that model was estimated to be between $150 and $350, making the wholesale iPhone price be around $580 and $780.

    Over the past week, reliable analysts (such as Gene Munster) have estimated the subsidy to be around $300 to $400 (depending on the market). Even if the manufacturing cost remains near the $200 figure, this still averages to about $350 of profit on every iPhone sold.

    We still have to see which model will sell better, since very few people mention that for $300 you get 16GB model. Originally, the 8GB model ($600 initially) outsold the 4GB model ($500) by 10 to 1 margin. If that ends up being the case with 3G, profit suddenly goes up by about $80 per iPhone sold.

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