Apple's iPhone profit margin greater than 50%

El Segundo, California-based iSuppli Corporation has calculated the bill of materials and manufacturing costs of the $599 8GB iPhone as $263.83, giving Apple a profit margin of nearly 56% on the device. The only difference between the $499 4GB iPhone and its more expensive 8GB sibling is the amount of NAND flash memory and the $24 less cost for 4GB compared to 8GB. By that accounting, the total comes to $239.83, putting Apple's margin at almost 52% for the cheaper model.

Infineon, a German semiconductor supplier, provided much of the core communications capabilities of the device, including the digital baseband, radio-frequency transceiver and power-management chips, said iSuppli. Infineon's parts accounted for $15.25 of the iPhone's bill of materials (6.1%) compared to Samsung's $76.25 (30.5%) of the phone's total. Samsung contributed the device's processor as well as its NAND flash memory and DRAM. Balda, a German firm, gets credit for the iPhone's touchscreen module which iSuppli priced at $27 (10.8%). The display itself costs an estimated $24.50, and comes from multiple sources, including Epson, Sharp and Toshiba Matsushita Display Technology. National Semiconductor contributed one chip, a $1.50 serial display interface.

News source: ComputerWorld

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I sure hope no one is surprised.

Of course Apple has a high profit margin. How else are you going to brainwash convince people that it's the "most elegant" hardware if it's not among the most expensive?

It's no different than designer jeans that sell for about $80 more than it costs to produce and sell them. But slap that designer logo on and BAM! you better expect to pay a very high profit margin on that denim just because the designer feels they are worth that much.

Like all of Apple's products, a huge chunk of the purchase price is for that snazzy little logo that equals green in Job's pocket. And Apple is hardly the first or the worst offender.

If only calculation were that simple. You don't take a lot into account. Everyone keeps bringing up marketing costs. Even if they spent a million on marketing costs, how much would that be cost per phone? How do you know it's only Apple who's spending money. We forget AT&T here. Do you really believe it's only Apple who has costs? It's in AT&T's interest this phone is a success. Apple does spread part of the cost to them as well. And as for packaging, it's not like a carton box costs $100 people. Packaging is part of production costs. Accessories are made separately. Noone's talking about those. You can bet that profit on those is probably even higher. It doesn't take a lot of money to produce $30 headsets.

Noone's even talking about Apple covering costs in a first day. It takes years to most companies, but then again, most of them don't have 50% margin.

We don't know about their huge debt. We can't even know until the end of fiscal year when financial reports are out, even then you won't be able to see how much of debt accounts for iPhone specifically (manegerial reports are done internally and not available for public). A lot forget Apple is a healthy company. Even if they have losses with iPhone (at first), they cover it with other areas of their business. So these HUGE losses you're talking about are "unrealistic". iPhone is just segment of their business.

still. (251.83*3,000,000)-(549*500,000)=755,490,000-274,500,000= - $480,990,000

They made 3 million iPhones, on average, $251.83 production cost (assuming 1.5 mil the $599, and 1.5 mil the $499 models) totalling $750 million JUST for manufacturing the PHONE (no accessories, box, marketing, etc).

They sold 1/2 a million in 2 days, at $549 (again, assuming each sold equally), making $275 million profit.

Meaning they have to sell at least another 876,120 phones to break completely even for the 3 million manufactured.. then god knows how many more to cover R&D, future upgrades/features, marketing, production, etc.

This calculation don't take a lot into considerationmind you. Right now they are setting in HUGE debt with this phone.. They wanted all 3 million to be gone by now.. which would have meant a profit of nearly $900 million in a VERY short time. Guess they should have looked at what phone features people want, rather than what eye candy they need for their phone that sits in the pocket while people use their BT headsets.

Keep in mind that the author of this article did not include research costs into his equation. By his logic, Intel's profit margin on the Pentium IV Processor would be close to 100%. Come on.

Research costs don't have to be included in the equation. They're considered sunk costs. Research has to be done, therefore cost already incurred and cannot be recovered no matter if Apple decided not to produce iPhone. You guys are mixing some things. Costs are very complex part of Economics theory and might be easily explained, but are usually not easily understood by most people.

If you want to brush up on certain things about this then I suggest to read this: http://www.economicswebinstitute.org/glossary/costs.htm#cost

*Please don't give me any Wikipedia stuff*

Apple is not dumb. They know they could put white candy coating on feces and sell it as iChocolate for $5 per ounce and people would buy it. For people to sit there and say the phone is not overpriced and worth every penny is hilarious. You may love the phone, but there are phones that are smaller and can do much more for much less. Just admit that Apple not only got you to wait in line for something that is readily available, but they also got you to pay more for it than it's actually worth.

all the fan boys are doing this they know that all the trendy kids will get this thing no matter the price so they are jacking the price up to were the market will bare not their fault they have stock holders to please.

tbh from what ive seen with the iphone and its price and components to me it does look like its been slapped together and a huge price wacked on it.

The only thing that would prolly cost apple alot is its programmers to make the software for the phone (IF theyve made the software and not just modified someones elses) and to make damn sure nothing except an apple made software product can be installed on it, which theyll prolly charge ya for.

I mean even with all those other components i dont know why it cant send something as simple as an MMS or be able to record a video which every phone can and has been able to do for a few years. Only thing i can think of is they dont really care or more likely youll have to pay for the software to be able to do those things.

The display maybe pretty but who cares seeing as itll be in your pocket or the side of your face speaking on it for 95% of the time. Its just a novelty item for techno geeks that have to have the latest gadget and doesnt care how completely useless it is. Then when they realise how useless it is itll go sit in the draw till the next thing comes out.

Thats my opinion, i like functionality in a phone, like a bit of style to but functionality means more to me.

Profit margin... very interesting. But the markup is to pay for research & development which Apple have pumped into this, plus legal costs and advertising and marketing costs. Heck, Apple might be making an overall loss depending how you cut the numbers.

Exactly, there is nothing new about iSuppli's bogus "profit margin" analysis reports. They never take other costs into consideration, only the bulk price of the individual parts of a device and the final retail cost.

roadwarrior said,
Exactly, there is nothing new about iSuppli's bogus "profit margin" analysis reports. They never take other costs into consideration, only the bulk price of the individual parts of a device and the final retail cost.

dude you already posted your opinion... stop saying the same thing to every comment ppl make...

and ok... say after they calculate all the packaging cost and marketing and whatever they have to do they are probably still getting a good 40% profit... at least!..

Now think about it... iSupply gets those prices from existing parts... now I am SURE apple gets discounts on those parts because I am sure they buy them in huge quantities... so the margin at the end might still be the same

roadwarrior said,
Exactly, there is nothing new about iSuppli's bogus "profit margin" analysis reports. They never take other costs into consideration, only the bulk price of the individual parts of a device and the final retail cost.

so when they calculate the costs for other manufactures and they also exclude this information... everyone else is actually losing huge amounts of money for each phone sold... wow...

think before you write

Of course, this doesn't count costs for the Apple developers, the marketing costs, costs for preparing the factories to build these, whether AT&T gets a cut from each iPhone sold (probably not, but you never know), etc.

I seriously doubt it is a 52% profit margin. It is probably high, but not that high.

chrisgeleven said,
Of course, this doesn't count costs for the Apple developers, the marketing costs, costs for preparing the factories to build these, whether AT&T gets a cut from each iPhone sold (probably not, but you never know), etc.

I seriously doubt it is a 52% profit margin. It is probably high, but not that high.

I don't know about this specific situation, but in Economics, when you specify the cost of good (production) you already calculate all the costs in the price. The margin is simply the difference between the cost the retail price - the cost of making the product. Btw. Apple did not build any factories or anything. As you can see they simply designed the product/software and combined technologies already available from 3rd party suppliers.

You don't have to doubt anything. They have high margin as with every Apple product. What they do with 52% is not important...they have it, it's there. If they decide to invest it in something else (aka marketing) it's their call, but they earned more than half then it cost them to produce.

Mike Frett said,
Something I think Apple should be investigated for.

Why should they be investigated? Do you live in a different america then the rest of us? You are free to charge whatever you want for a product. If people buy it then people are willing to pay that price.

Also none of those figures take into account the amount of money put into R&D to develop the device, or do you think Apple just slapped it together from existing components?

Do you know how much of a profit a movie theater makes when you buy a soda there? Do you know how much a 33oz cup of fountain soda actually costs the theater? Once you add in the cost of the cups, the syrup and general machine expenses it comes to about 25 cents a cup, you then get charged anywhere from $3.25 to $4.75 for that cup of soda

Welcome to a free market economy where thankfully companies can't be investigated for their pricing and are free to make a profit. Sure some things might be a rip-off, but thats only be THE PUBLIC IS WILLING TO PAY the ripoff prices.

richter said,

I don't know about this specific situation, but in Economics, when you specify the cost of good (production) you already calculate all the costs in the price. The margin is simply the difference between the cost the retail price - the cost of making the product. Btw. Apple did not build any factories or anything. As you can see they simply designed the product/software and combined technologies already available from 3rd party suppliers.

You don't have to doubt anything. They have high margin as with every Apple product. What they do with 52% is not important...they have it, it's there. If they decide to invest it in something else (aka marketing) it's their call, but they earned more than half then it cost them to produce.

You seem to miss the point here. iSuppli's calculations are based purely on the bulk prices of the individual components that make up a device that they tear down. Their numbers don't include assembly of those parts, nor does it include packaging, marketing, or even the software that runs it, they only include the individual components. Profit margins are calculated AFTER every other cost has been taken into account, not only after you have bought the parts to assemble a device. That, my friend, is Economics 101.

roadwarrior said,

You seem to miss the point here. iSuppli's calculations are based purely on the bulk prices of the individual components that make up a device that they tear down. Their numbers don't include assembly of those parts, nor does it include packaging, marketing, or even the software that runs it, they only include the individual components. Profit margins are calculated AFTER every other cost has been taken into account, not only after you have bought the parts to assemble a device. That, my friend, is Economics 101.

has calculated the bill of materials and manufacturing costs

I presume that would include assembly, packaging. R&D and all pre-manufacturing costs are called sunk costs which every company has. It's normal thing. There are various way to calculate costs. Sometimes sunk costs are included, but in most cases they are not. So, in reality not every possible cost is calculated. I'm not arguing this report is accurate.

Even if Apple does not have 50% margin, it certainly does have a huge margin compared to competitors. As if Nokia, Sony Erricsson, Samsung...don't have R&D, marketing and other costs. Yet they don't have such high margin and remain profitable. It's known fact Apple does have huge margin on every product they sell. I'm just saying that they don't have such huge costs you think they might. They don't build factories, they don't develop parts for their products, they don't even assemble them. Apple simply designs it and outsources manufacturing to other companies who already have technology and factories. This allows Apple to produce at low cost and simply use marketing to make a hype and sell at enormously high prices. This is not normal market situation nor does it imply efficient market as thought by Economics theory...then again, what if anything really follows the rules as thought in school.

chrisgeleven said,
I seriously doubt it is a 52% profit margin. It is probably high, but not that high.

Considering the lacklustre features of the device in comparison to the (cheaper) competition, I am not a bit surprised that it's such a high profit margin.

Kushan said,

Considering the lacklustre features of the device in comparison to the (cheaper) competition, I am not a bit surprised that it's such a high profit margin.

They need the profit margine to pay the developers as they work to finnish the half finished OS embedded on the phone so they can upgrade mobile OSX 0.5 on the phones to mobile OSX 1.0 for "free"

Apple is really good at industrial design. For $600 from another company I wouldn't be able to get a gadget that is even close to the elegance that the iPhone has.

We'll see how the iPhone is in 2009... (thats when I'll get it... Verizon contract will expire then)

get real, my new Samsung U600 looks better than the iPhone, heck I'd even say HTC's touch phone looks at least as good as the iPhone

HawkMan said,
get real, my new Samsung U600 looks better than the iPhone, heck I'd even say HTC's touch phone looks at least as good as the iPhone

Awesome, you mean both your phones have a full touch screen and one of the most intuitive user interfaces tied to that touch screen? Oh thats right...they don't.

I hate to seem like an iPhone fanboy, but anyone who argues that thier phone looks better then the iPhone is out of their minds. More features, definitely, but looks better...um no sorry

Qumahlin said,
Awesome, you mean both your phones have a full touch screen and one of the most intuitive user interfaces tied to that touch screen? Oh thats right...they don't.

I hate to seem like an iPhone fanboy, but anyone who argues that thier phone looks better then the iPhone is out of their minds. More features, definitely, but looks better...um no sorry

It's perfectly logical to pay an extra $300 for a phone with less features because it has a touch screen and prettier icons.

Qumahlin said,
I hate to seem like an iPhone fanboy...

Seem?

the iphone is just a brick with a screen on it. oh, man it looks so pretty!! so intuitive!! nothing like a pocket PC with a cellphone crammed in!! feel free to waste your money.

the perfect cellphone is a small device that can call people and text people. thats all it needs to do!

Qumahlin said,

Awesome, you mean both your phones have a full touch screen and one of the most intuitive user interfaces tied to that touch screen? Oh thats right...they don't.

I hate to seem like an iPhone fanboy, but anyone who argues that thier phone looks better then the iPhone is out of their minds. More features, definitely, but looks better...um no sorry

are you american right?
cuz if you are no wonder, they are tons of prettier phones than this in japan and europe, if the prettiest phone you have seen good for you, but its doesn't make it the best.

Qumahlin said,

Awesome, you mean both your phones have a full touch screen and one of the most intuitive user interfaces tied to that touch screen? Oh thats right...they don't.

I hate to seem like an iPhone fanboy, but anyone who argues that thier phone looks better then the iPhone is out of their minds. More features, definitely, but looks better...um no sorry

sorry , I gues I have to feed you this with tea spoon seeing as youre being a bit dense about it.

I... do... not... want... a... full... screen... touch... screen

that clear enough for you, I don't find a phone with just a touch screen for an interface very good to use at all. and for the record, the new HTC touch phone does have full touch screen, and no keyboard, unfortunately, and it looks better than the iphone. it's also got a very itnerestng new untuitive interface to go with it, and in additon it runs WM6 underneath giving you every functionality you'd want and need.

personally, even if the iphone was cheaper than my U600, whch doesn't have a touch screen or a harddisk. I'd still buy the U600. Not because it looks better (wich it does) but it's got a keyboard, doesn't have a bloated 700 goddamn MB OS embedded, and it does what I need. it rings, it's got a good camera, mSD slot, MP3 player, calendar, and support for third party apps.

So you where wrong, one of the phones I mentioned had both one of the most intuitive movile interaces and a full touch screen.

For the record not everyone on earth has to be in the jobs reality distortion field and think that anything Apple makes looks better than everything else. I you think Apple design is all that, sue ok that's your prerogative, but don't come here and presume you speak for everyone and claim that everyone who don't agree are idiots and crazy.

for the record, a brick with rounded corners and one side covered in a screen isn't innovative design.

HawkMan said,

sorry , I gues I have to feed you this with tea spoon seeing as youre being a bit dense about it.

I... do... not... want... a... full... screen... touch... screen

that clear enough for you, I don't find a phone with just a touch screen for an interface very good to use at all. and for the record, the new HTC touch phone does have full touch screen, and no keyboard, unfortunately, and it looks better than the iphone. it's also got a very itnerestng new untuitive interface to go with it, and in additon it runs WM6 underneath giving you every functionality you'd want and need.

personally, even if the iphone was cheaper than my U600, whch doesn't have a touch screen or a harddisk. I'd still buy the U600. Not because it looks better (wich it does) but it's got a keyboard, doesn't have a bloated 700 goddamn MB OS embedded, and it does what I need. it rings, it's got a good camera, mSD slot, MP3 player, calendar, and support for third party apps.

So you where wrong, one of the phones I mentioned had both one of the most intuitive movile interaces and a full touch screen.

For the record not everyone on earth has to be in the jobs reality distortion field and think that anything Apple makes looks better than everything else. I you think Apple design is all that, sue ok that's your prerogative, but don't come here and presume you speak for everyone and claim that everyone who don't agree are idiots and crazy.

for the record, a brick with rounded corners and one side covered in a screen isn't innovative design.


the iphone is not 700mb for chris sake!!,
a little bit of maths.
8gb are never format to the full 8gb,
the rumor comes from a lame site that notice after boot the free memory was 7.3 gb so he did this
8gb - 7.3 gb = 700 mb
while the real calc is
7.45 GB (real format), - 7.3 = 150mb