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iPhone 3G May be a Profit Magnet
Thursday, June 12th, 2008 at 4:00 PM - by Jeff Gamet
Apples iPhone 3G my be priced starting at US$199, but that doesnt mean the Cupertino company isnt making any money on the devices. If component cost estimates are accurate, the 3G version of the combination iPod and smartphone could be Apples most profitable product, according to the Yankee Groups Carl Howe.
Based on industry estimates, Apples 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 Apples 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 wont 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 Apples penchant for securing favorable component prices, however, current cost estimates probably arent too far off.
Mr. How added "So whats the takeaway here? Its simple: Apples 3G phone isnt a loss-leader product needing subsidies to survivie. Its 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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