Apple's 50 per cent profit margin on iPhone

Apple will enjoy a 50 per cent profit margin on each iPhone sold, according to a breakdown of the handset's component costs by research phone iSuppli.

The figure is drawn from analysis of the capacity and features of the phone-iPod hybrid, combined with information from Apple about the materials used plus company sources and third-party publications. iSuppli says that although the figures are preliminary until it gets hands on a physical unit, it has a 'high degree of confidence' in its findings.

'iSuppli estimates the 4GB version of the Apple iPhone will carry a $229.85 hardware BoM [bill of materials] and manufacturing cost and a $245.83 total expense, yielding a 49.3 percent margin on each unit sold at the $499 retail price,' said Andrew Rassweiler, teardown services manager and senior analyst. 'Meanwhile, the 8GB Apple iPhone will sport a $264.85 hardware cost and a $280.83 total expense, amounting to a 46.9 percent margin at the $599 retail price.'

Such margins are not unusual for Apple, according to Jagdish Rebello, director and principal analyst at iSuppli, with margins of 45 per cent and more in several other products including the iMac and iPod nano. And such high margins give Apple plenty of scope for price cuts in the face of what is expected to be extensive competition.

"With a 50 per cent gross margin, Apple is setting itself up for aggressive price declines going forward," Rebello said.

iSuppli estimates that some 835 new mobile phone models are expected to be introduced in 2007, including 14 music-enabled handsets with features that compete closely with the iPhone that are already shipping from manufacturers including Nokia, Motorola, Samsung and LG.

Tina Teng, analyst, wireless communications, for iSuppli said that she expects phone manufacturers (OEMs) such as these to introduce models designed specifically to compete with the Apple iPhone.

"The most successful OEMs will be those already established in the mobile-phone business, that support all file formats and that have excellent sound quality," Teng said.

To succeed these must have excellent supply-chain relationships with suppliers of the kind of touch screen used in the Apple iPhone, Teng added.