RSSApple set to profit from 3G iPhone due to cheaper parts, memory
By Nate Mook and Scott M. Fulton, III | Published June 25, 2008, 7:50 AM
Despite its new capabilities, the new 8 GB 3G iPhone will cost Apple $100 less than its predecessor a year ago, indicating the company is set to drastically increase its profit margin on the device thanks to its new arrangement with AT&T.
In a preliminary teardown by hardware analysis firm iSuppli of the 8 GB iPhone 3G -- Apple's less expensive model, at $199 retail through AT&T when it launches July 11 -- iSuppli estimated Apple's bill of materials (BOM) per unit totaled $173.00.
By comparison, iSuppli estimated in January 2007 that Apple was reaping a profit margin of over 53% for its original 8GB iPhone -- at that time, its most expensive model -- with a total BOM of $280.82. In 17 months' time, the new 8 GB iPhone 3G costs 62% less for Apple to build, even with GPS thrown in (a component that costs all of $3.60 wholesale).
Contributing greatly to the reduced manufacturing costs is the continuingly plummeting price of NAND flash memory. Last December, iSuppli estimated that 8 GB of NAND flash contributed $40 to the bill of materials for the new iPod Touch.
Today, six months later, that same 8 GB constitutes just $22.80 of the iPhone 3G's BOM. The display, meanwhile, only costs $2 less today than it did in December.
Although the base iPhone 3G will sell for just $199 at retail, Apple will receive far more than that with AT&T footing the bill as it does with most phones. Wireless carriers subsidize much of the cost of devices and make up the difference with revenue from new and existing subscribers.
For the original iPhone, AT&T shared a portion of that revenue with Apple instead of paying the company a higher price for the phone, which ran $299 after last September's price drop. The iPhone 3G without an AT&T contract, which reflects the cost to the carrier, will likely be priced hundreds of dollars more than its subsidized $199 price tag.
UPDATE Last week, an Oppenheimer analyst presented a conservative estimate of what AT&T may be paying to Apple per unit: about $325. If that's accurate, then based on Tuesday's teardown analysis, Apple's profit margin for the 8 GB iPhone soars to 63%.
But that would be $126 per unit, which is about half of what Apple was making per sale at the dawn of the first-edition iPhone in January 2007. At the end of that model's reign, BOM estimates had fallen to about $220, and Apple was selling it for as low at $299.
Less conservative estimates say AT&T could be paying as much as $425 in subsidies per unit to Apple. If that's the case, Apple's margin -- not just the percentage, but the amount -- may have returned to what it was at the beginning of last year, around $250.
Worldwide, IPhone has 1% of the market. I believe Mokia has 40% of the worldwide market. Their profit not only comes from what is stated in this bias article but also from building their products in slave-like conditions such as china.
To be fair, other companies do the same thing.
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|I called ATT the other day to ask questions about the pricing and plans for the iPhone 3G. If you look at the att website the price of $199 and $299 are listed for well qualified buyers. When I talked to ATT they said I can get it for those prices because I qualify for it as an upgrade. People who are buying it before their two year contract is up will be paying more for either phone, perhaps $100 more.
Still, I'm excited to get it when it comes out July 11th especially at the upgrade price.
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|Apple sucks so does iPhone, I prefer Nokia over rotten apple
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|Could Apple's stuff get any cheaper? It's practically held together by chewing gum and fishing line already.
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|This is what Portelligent said three weeks ago.
See http://www.eetimes.com/s...ml;?articleID=208403011
Rick
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|like it is news? Apple always has high premium on their products. For any entrepreneurs out there, you need to learn from Apple. it's not about the product, it's about the marketing.
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|Tell that to GM and Ford
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|GM and Ford will never listen. Why would they? Whatever happening, it will not affect the people in control. If they make money this year or quarter, they just reward themselves handsomely. If they loss money, they lay off people at the bottom and close plants, and because they "save" company money, they deserve some rewarding as well.
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|TO suggest Apple products don't have a larger markup on them would be dishonest but to suggest that some of the higher price isn't based upon a slightly higher quality product would be ludicrous.
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|That's the typical American way of doing business. Ignore reality and keep doing the same thing until you're out of business.
I remember people from a certain aerospace company (that had been closed 6 different times by then) that we couldn't change because "we've always done it like that." As I left the company 2 years later and most of their employees had been laid off, I thought that they'd always done lays offs like that, also.
I'd think most of what costs Apple is the multi-touch capable "fabric", the nice display, and the flash storage. It makes me wonder how phone companies can suggest that the "free" phones can cost $200.
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|They are set to make zero profit off of me with AT&Ts current upgrade rules for non iPhone users.
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