“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.]
Yea and Apple stock is down 5.60 per share
@ Martin:
It’s an unjustified drop based on fear of Steve Jobs’ health even though Apple PR has gone on the record to say that it’s just a common bug.
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.
“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?
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.
What about iPod touch sales?
Why would anyone buy a touch?
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
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.
“What about iPod touch sales? Why would anyone buy a touch?”
Um…because they want a great music player?
And they don’t want a monthly fee.
I predict the iPod touch is the future of the non-iPhone iPod, with the exception of the shuffle.
Why? Because there a lot of people who don’t need, want, or in some cases refuse to pay for, a monthly minimum of $70 + tax phone plan.
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.
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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.
The estimated number for that first year is $7 Billion in pure profits for Apple. Talk about a cash cow!
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.
Quote Predrag; “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.”
??????
Do you know what ‘wholesale’ means? Are you saying that Apple and ATT are selling iPhones hundreds of dollars below wholesale?
If the original iPhone cost around 250 to build and ship, as you say, then the wholesale price would likely be 250 plus some acceptable margin, say 50% (at most) above 250, bringing the wholesale price to around 375.
Anyhow, it makes perfect sense that the cost of manufacturing the iPhone have dropped significantly since its release, and that Apple has lined up supply chains and contracted for for the parts it needs for the foreseeable future, bringing the price down more.
$100 in cost of materials seems right, add another $50 per unit for fabrication, packaging and shipping and that’s probably the actual dollar value of each iPhone. Add the 50% margin and that’s the wholesale price.
The ‘subsidy’ is a red herring. There is no subsidy.
…“The ‘subsidy’ is a red herring. There is no subsidy.”
If there had been no subsidy (on 3G), that would appear to be the biggest coup any mobile carrier had ever done with a cellphone maker. Every single cellphone out there is subsidised to the tune of at least $150. Now, AT&T;is charging extra $240 for the iPhone plan, compared to the old iPhone, or $720 more than for any other ordinary phone without any data plan.
As for wholesale and retail prices, Apple’s (and AT&T;’s) retail price will be as announced, $199. Apple’s wholesale price to AT&T;is expected to be around $550. AT&T;will eat up the difference (by selling it below wholesale, or subsidising it), in order to sign users up to its (expensive) 3G flat-rate data plan, which adds $30 per month on top of the standard voice-only plan. This business practice is called ‘loss leader’; you sell a product below wholesale, then make up the difference by selling another product or service. Gillette made the concept famous (by giving razors away for free and making huge profits on blades). Exactly the same concept, and Apple will be getting the full wholesale price.
You may expect iPhone 3G to retail without any subsidy (in countries where law requires this option) for an equivalent of up to $700.
Apple will be raking in colossal profits on this little device.
@Predrag
How do your opinions today relate to your opinions last week?
And how will you adjust them next week?
Or when iPhone is $0? (Apple’s tradition for iPhones is to have $200 price drops in July and in September.)
http://macdailynews.com/index.php/weblog/comments/17557/
“The chances of a $200 iPhone are minimal at best. Apple’s tradition is to refresh hardware at same price point. There is absolutely no reason for price to drop. The $400 was the sweet spot that had stretched logistics of pushing the first gen. iPhone through to the limits. Apple executed flawlessly, but the device was often sold out.
With all the additional features the new version will get, $400 will be an excellent deal.
And iPod touch is perfectly safe.”
Again, I’m impressed by a quote from my postings in the past!
There is a difference, though; the one from last week was clearly a personal opinion. Obviously, Apple has proven me wrong, and in my defense, the actual price of the phone during the first two years of (mandatory) contract wasn’t reduced (it’s in fact $40 more).
My message of today wasn’t so much a personal opinion; it was more a summary of other people’s research. It may eventually also be proven wrong, in which case people who supplied original information (such as Gene Munster of Piper Jaffrey) will be proven wrong.
As for personal opinion, I still believe iPod touch is perfectly safe (for now; I also believe Apple’s grand plan is to eventually elliminate the iPod line and consolidate it with the phone, but eventually – not very soon).
As far as the idea that the iPod Touch will be the only model…. I HOPE NOT.
I actually use my nano more than my Touch for listening to music. I like the ability to just stroke the circle and up or down my volume or jump back or forwards to the next song. You just cannot do that with the touch.
So I think there will be at least two iPods that will survive.
Just a thought.
en