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iPhone 3G May be a Profit Magnet
Thursday, June 12th, 2008 at 4:00 PM - by Jeff Gamet
Apple’s iPhone 3G my be priced starting at US$199, but that doesn’t mean the Cupertino company isn’t making any money on the devices. If component cost estimates are accurate, the 3G version of the combination iPod and smartphone could be Apple’s most profitable product, according to the Yankee Group’s Carl Howe.
Based on industry estimates, Apple’s 8GB iPhone 3G could cost the company as little as $100, which makes for a 50 percent gross margin over parts cost, which is about the same as the gross margins on the iPod. If analyst expectations are right, and AT&T is adding in a $200 subsidy, then the iPhone 3G will add a tidy sum to Apple’s bottom line.
"In fact, if these numbers are true and the carriers are subsidizing the phone, the iPhone 3G could end up being the most profitable product Apple makes," Mr. Howe said. "But more likely, this means that Apple has a lot more pricing flexibility than analysts have given them credit for."
Since the iPhone 3G won’t be available until July 11, no one has been able to disassemble one to get a completely accurate accounting of parts for cost analysis. Based on Apple’s penchant for securing favorable component prices, however, current cost estimates probably aren’t too far off.
Mr. How added "So what’s the takeaway here? It’s simple: Apple’s 3G phone isn’t a loss-leader product needing subsidies to survivie. It’s designed to be an Anywhere phone that puts your online life, media, and connections in your pocket, yet be simple enough for your grandma to use."
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