“Analyst Turley Muller, on his blog Financial Alchemist, said that with the carrier subsidies, Apple earns well beyond what it spends to build each iPhone. All three models of the phone earn more than 58 percent margins, with the 32GB iPhone 3GS carrying the most profitable 59.6 percent margin,” Katie Marsal reports for AppleInsider.
“‘Going forward Apple will recognize higher iPhone revenue carrying a higher gross margin,’ Muller writes. ‘As iPhone revenue as a percentage or share of total revenue increases, the impact of the higher iPhone (gross margin) on overall (gross margin) will intensify. This will assuage margin pressures Apple faces in other areas,'” Marsal reports.
“Muller goes on to suggest that the high profitability of the iPhone has allowed Apple to lower prices on its MacBook Pro lineup without having any effect on the company’s earnings,” Marsal reports.
Full article here.
[Thanks to MacDailyNews Reader “James W.” for the heads up.]
ah, give and take
I’m going to make a bold prediction: going forward, Apple will continue to sell several different varieties of iPhone at any given time, and the high-end premium model will have a high margin.
60%?! what other company is capable of selling a non sale gadget at such profit?
My, how things have changed.
Dell: struggling
Microsoft: beleaguered
Apple: money machine
@wannabe
I’ve iCal’d that.
@Urlow
I think Microsoft sells Windows licenses at about 90% margin.
@chabig,
He said “gadget”. Gadget ≠ software.
We are going to 600 …. some day!
http://macdailynews.com/index.php/weblog/comments/15327/
Perhaps it is about 60% gross margin compared to the cost of BUILDING the iPhone, but that doesn’t take into account the development of the OS, support, etc.
While I’m sure Apple makes a healthy profit on the iPhone (in their typical 25%-32% range), it’s not 60% when development and support costs are factored in.
Funny how those teeny, tiny, insignificant costs seem to get left out of these articles.
The second report in the article, compiled by Shaw Wu, stated:
“Kaufman Bros. had assumed that more customers would lean toward the affordable $99 iPhone 3G model.”
This guy’s a moron! Anyone who knows anything about the iPhone knows that the 3GS had significantly improved performance and hardware. Just goes to show that when you “assume,” you make an a**. . . .
it also means that when they drop AT&T;exclusivity they have room to balance lowered subsidy vs increased volume opportunities.
I have two comments about this report:
The high margin is supported by the non-GAAP numbers that were reported by Apple. Given the high demand and the tendency of users to ignore the costs that are hidden in the contract cost, I do not find it surprising.
The statement that Apple lowered the cost of the MacBook Pro line is specious. Apple did what it always does. It increased the performance and features without changing the prices significantly. This time they added one more interesting feature by extending the “MacBook Pro” name to lower price points. This change is marketing at its finest. People think that they are getting something that used to cost more for less. OTOH, I think that Apple decided to make this change more to spite Microsoft’s laptop hunter advertisements than to actually improve sales.
@ Bizlaw:
Thank you, well said.
Apple’s margins are very impressive for a hardware company. Last quarter was 38%. They keep warning that margins will go down but they really don’t.
M$ make huge margins too but they are primarily a software company and actually lose money on most of their hardware.
Apple do it the other way make mininal on software and services like iTunes but rake it in on the hardware.
Look for Apple to price their products more competitively. They will slowly lower prices on the Mac and iPod product lines to increase sales without compromising on profit.
Well, it’s impressive that Apple’s gross margins are above 36%, seeing as Oppenheimer and Cook went to great lengths a year ago to argue that they saw margins to be 30% for this year, due to a product transition. Remember that? Well, a 1% difference in margins has a huge effect upon profitability, and just imagine how a 6% improvement on that has on profits?
As for the Gross Margins on the iPhone, one has always been able to get a very close estimate the last 4 quarters by looking at the reconciliation of non-GAAP to GAAP table that Apple provides. The GM has always been around 70%!!!
Last quarter, the non-GAAP adjustments showed GM of 1.005B and Sales of $1.405B. Put 1.0 over 1.4 and you get 71.5% Gross Margin.
At the end of March, the figures were $653M over $893M, for a GM of 73%
At the end of December of 08, the figures were $995M over $1.632B, for a GM of 61%
At the end of September of 08, the figures were $1.8B over $3.787B, for a GM of 47%.
So, we’ve seen a very close approximation of Gross Margin that Apple provides that indicates the GM on the iPhone is in the range of 47% to 73%, and closer to the 73% as time has passed. So, what’s new?
“I think Microsoft sells Windows licenses at about 90% margin.”
That is an ignorant comment. You are taking the cost of pressing a DVD-ROM, making a shrink-wrapped box and getting it on the shelves as the net cost. Obviously, that’s not how it is done in the software business.
However, that is pretty much how it is done in the hardware business.
“Perhaps it is about 60% gross margin compared to the cost of BUILDING the iPhone, but that doesn’t take into account the development of the OS, support, etc.
Everyone knows that; however, when analysts report (or estimate) margins for a product (any hardware product), they talk about gross margins. It is impossible to figure out how much are the the costs related to development of the iPhone. Its OS runs on an iPod touch, so the cost is shared. However, it is based on OS X (the desktop version), so good deal of that development effort was shared as well (everyone remembers when Jobs pulled developers off from Leopard dev team and into the iPhone dev team in order to ship iPhone in time). And marketing often covers the whole Apple brand, or multiple devices.
The point is, when margins are discussed for hardware, we talk about GROSS margins. We compare Dell, HP, Apple; we compare Storm, Pre, iPhone. And iPhone has by far the highest gross margins of them all.