Thursday, July 03, 2008

Is just over 100% profit for the iPhone too excessive?

Wow, I was just reading an article and realized that a certain company might be a bit greedy...
"Analysts reckon Apple is pocketing as much as $352 per iPhone sold, based on estimates carriers pay about $525 per phone, which Apple is thought to spend about $173 to make, according to iSuppli, which tracks manufacturing costs.That means Apple could make between $12.3 billion to $15.8 billion in gross profit on the iPhone over the next two and a half years."
The article also states that analysts estimate between 35 and 45 million iPhones will be sold before 2010. At $352 profit per iPhone, that comes to between $12,320,000,000.00 and $15,840,000,000.00 in pure profits for Apple. Can we blame them for charging this much? Will the high price keep people from buying it? Probably not... It is one heck of a cool phone.

So lets just say they were to lower the price to benefit both AT&T and the end user by $100... so the total cost to AT&T would be $425 and the profit per iPhone for Apple would be $252 which is only a 45.66% profit. Not the great over 100% profit they were getting before, but still pretty good. With the estimated number of iPhone sales mentioned above their total iPhone profit would fall between $8,820,000,
000.00 and $11,340,000,000.00... how can you complain with $8.8 Billion profit?

It sure would be nice to be able to get a G3 iPhone for only $99! And to think the profit Apple would still make at that price.


chris said...

I'm pretty sure that iSuppli only calculates *component* costs. This does not include manufacturing costs, research and development costs, advertising costs, support and staffing costs, among others.

It isn't uncommon for a company to sell widget X to a retailer for twice their cost, and then for the retailer to double that, resulting in a product that retails for 4 times as much as it does to make.

Furthermore, for the first iPhone, Apple received something like $8-10 a month from AT&T for EVERY contract. They will no longer be receiving that for the iPhone 3G if I recall correctly.

While I'm sure that Apple views the iPhone as a profit producing product (as opposed to the iTunes store, for instance, which they operate at very, very low margins, and see as a way to drive iPod sales), I doubt they are making as much as it appears from your post.

I have been known to be wrong once in awhile, though. (:

Matt said...

iSuppli is very good about showing what it covers... it does only cover the parts and manufacturing of the parts. It does not include other costs such as Software Development, Shipping and distribution, packaging, and miscellaneous accessories that are included with the iPhone.

I would venture to say the R&D effort for the 3G iPhone was less time and cost than the initial R&D for the initial iPhone.

You are also correct about the service subscription revenue from the 2G iPhone. For the 2G iPhone, Apple was given a portion of the wireless carriers’ revenue from service subscriptions. With the 3G version, Apple is not garnering any service revenue, making it more imperative that the company cut a profit on the actual hardware through the carrier subsidies.

iSuppli has observed that Apple’s iPod and iPhone products typically are priced about 50 percent more than their BOM and manufacturing costs. With the new iPhone sold at a price of $199 and the estimated subsidy of $326, Apple will achieve an even higher BOM/manufacturing margin... 103.5% to be exact.