Apple creaming profits on iPhone
Posted on | July 4, 2007 |
Apple’s iPhone could deliver a profit margin of more than 55 per cent after hardware and manufacturing costs, research firm iSuppli said on Tuesday, sending shares in the company up nearly 5 per cent.
The iSuppli report provided a glimpse into the financial model of the iPhone, which hit U.S. stores on Friday, and gave a new boost to Apple.
Some analysts had predicted the company’s shares would grind to a halt or even drop after gaining more than 30 per cent in the run-up to the iPhone launch.
Based on an examination of the iPhone’s components, iSuppli estimated that its hardware and manufacturing cost was $US265.83 ($NZ330), or almost 45 per cent of a $US600 retail price for its more expensive model with eight gigabytes of storage.
That leaves a profit margin of more than 55 per cent, but does not include costs such as royalties or logistics.
In comparison, iSuppli said, average gross profit margins range from 20 per cent to 30 per cent for advanced phones from cell phone rivals such as Nokia, Motorola and Samsung.
Other analysts have estimated that traditional cell phone makers tend to achieve gross margins of 40 per cent to 45 per cent for their high-end phones.
The report cheered investors who have bet the iPhone, which combines a phone, Web browsing and a media player, will become a major part of Apple’s business alongside its Mac computers and iPod digital media players. ISuppli has estimated the iPod’s gross margins run at 40 per cent to 50 per cent.
Apple and AT&T, the iPhone’s exclusive U.S. service provider for the next two years, have kept details of their business partnership under wraps.
Some industry experts say that AT&T may reap a portion of the retail price for iPhones sold in its stores.
On the flip side, other analysts say Apple could pocket anywhere from $US5 to $US9 of monthly service charges levied on iPhone customers by AT&T. The minimum required two-year wireless service contracts for the iPhone cost $US60 per month.
Apple was not immediately available for comment on the iSuppli estimates.
ISuppli also shed light on the companies providing parts for the iPhone. The phone’s display, a much lauded feature for the device, costs $US27 or about 10.8 per cent of its hardware costs. The display was supplied by Germany’s Balda AG, iSuppli said.
The phone’s core communications chips, from Infineon Technologies AG, represent $US15.25 or 6.1 percent of the cost.
Estimates for iPhone sales in its first two days on the market ranged from 312,000 to 500,000, analysts contacted by Reuters said. AT&T said that iPhone sales for the weekend were the strongest for any device in the company’s history.
Apple shares were up $5.91 or 4.9 per cent to $US127.17 on Nasdaq. Shares of AT&T were down 35 cents at $US41.50 on the New York Stock Exchange.
Source: Reuters | Wednesday, 4 July 2007
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Since 7th June 2007
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July 4th, 2007 @ 9:24 am
Breakdown has OS X as $7, and nothing for the 3 years R&D that went into the phone.