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Apple earns approximately a $400 profit per 16 GB iPhone 3G S sold, and $500 per 32 GB 3G S sold.  (Source: iSuppli)
Apple is making a handsome profit on its new phone

Apple has reportedly the world's strongest brand image, and yet manages to maintain some of the industry's largest profit margins, a rare achievement.  Now that the iPhone bill of materials (BOM) for the iPhone 3G S has been divined thanks to an iSuppli tear down, it appears that Apple has another business success story on its hands with the iPhone 3G S.

The hot new phone's components cost $172.46, for the 16 GB model, according to Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli.  The most expensive component is the 16 GB of NAND flash memory, produced by Toshiba and estimated to cost $24/unit.  Least expensive is the audio codec chip, which costs a mere $1.15/unit, produced by Cirrus Logic.

The phone costs approximately $6.50 to assemble, bringing the estimate cost to $178.96/phone. 

The 16 GB iPhone 3G S costs $599.99 for returning customers with less than a year on their contract, and as little as $199.99 for new customer or returning customers with 2 years on their contract.  However, according to reports, Apple sells the iPhones to AT&T at approximately $600 per phone, and the carrier provides the discount.  Apple is also rumored to get a small cut of the subscription fees.

States Mr. Rassweiller, "Although the retail price of the 16GB iPhone 3GS is $199, the same as for the 8GB version of the original iPhone 3G, the actual price of the phone paid by the service provider is considerably higher, reflecting the common wireless industry practice of subsidizing the upfront cost of a mobile phone and then making a profit on subscriptions."

At a minimum, before shipping, R&D, etc., it appears Apple is making a whopping  $422 profit on every $178 (manufacturing cost) phone sold.  That incredible profit margin may be cut into a bit by the aforementioned expenses of transportation, R&D, advertising, and other costs, but likely remains quite impressive at the end of the day.  Even better for Apple, it likely enjoys an even larger profit on the $699 32 GB iPhone 3G S, as the only difference is a marginally more expensive (likely $20 or less) NAND chip.

Concludes Mr. Rassweiller, "From a component and design perspective, there's also a great deal of similarity between the 3G and the 3GS. By leveraging this commonality to optimize materials costs, and taking advantage of price erosion in the electronic component marketplace, Apple can provide a higher-performing product with more memory and features at only a slightly higher materials and manufacturing cost."


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RE: Good for Apple!
By omnicronx on 6/25/2009 11:15:39 AM , Rating: 1
quote:
But that's the point isn't it.
And how could you possibly know this is the best way to turn a profit? Sometimes I just don't understand Apple, it makes sense for them to sell their laptops for a higher price if people are willing to pay, but with the iPhone, the app store has the potential to make well over $200 over the time they own the phone.

So just think about it, if the price actually was $200-300 new instead of 500-600, they would easily outsell the competition, and make it all back and more on the app store, all the while making it affordable to the masses. They could easily sell twice as many phones if the price were cheaper than most other phones out there. Not to mention it would push users to upgrade their phones upon a new release.


RE: Good for Apple!
By TomZ on 6/25/2009 11:21:07 AM , Rating: 1
I would assume that Apple has very closely studied the demand-vs-price curve for their products and has figured out the optimum pricing point. Why would you assume otherwise?


RE: Good for Apple!
By mmcdonalataocdotgov on 6/25/2009 11:40:51 AM , Rating: 2
The problem with the article is the "other" aforementioned costs that have been left out, which are considerable. R&D is a large cost, what about the cost of running their leases on office space, heat and light, water and sewer, taxes, HR plus salaries and benefits, IT, legal and other departments like accounting, vehicles and gas, brick and mortar store fronts and related personnel, shipping, and the real biggy: marketing and advertising. I think it is more likely that Apple makes at most $50 per unit that could go to net profit.

BTW, I am a total PC fan, although I have a nano.


RE: Good for Apple!
By callmeroy on 6/25/2009 11:57:27 AM , Rating: 2
But you are missing a key point though --- you don't include much of those items into your costs of a single product line.....unless the facility was built SOLELY for making ONLY a single specific product to assume the costs of the building, sewer and water, account, taxes, HR, etc. The costs of utilities, building expense, taxes are spread throughout the business not on a single product line (unless you literally only have a single product of course), this is certainly not the case with Apple though.


RE: Good for Apple!
By omnicronx on 6/25/2009 11:53:55 AM , Rating: 2
Because it is the safer route of course. That is Apples MO with PC's and laptops, so I don't see them changing for the iPhone,iPod. But as I have already stated, their computers don't have an Appstore to bring in millions. Apple does not seem to care too much about market share, which makes sense right now, but eventually competitors will move in and take the lower echelon of the market with a comparable App store and phones. Right now they have the chance to expand making the job of other manufacturers that much harder, they may not have that opportunity at a later date.

The HTC hero looks amazing if you ask me, their interface blows the iPhone interface out of the water. Can't wait for other Manufacturers to customize the Android interface in the same way. (Samsung among others are working on their phones as we speak)


RE: Good for Apple!
By rudy on 6/25/2009 2:47:10 PM , Rating: 2
Actually not always true the Tag case study in business speaks the opposite. Sometimes as in apples case you sell more by pricing something higher. I also am involved in the art world and see the same thing. The reality is people are as stupid as you think and if apple priced it lower they woudl think it is not as good but by making their products high priced then advertising that they are better then anything else people believe it is true and so they happily pay more because they believe they are getting something worth more. Apple has done a great job they realized their was no way they could compete with the value of other companies so they stopped doing that and just positioned themself as a high end brand look we all know that a BMW or Gucci is not worth what is charged but people will still buy them at a premium because it speaks more to the fact that they have the money to do it. That is what really makes them feel good. A 15$ timex keeps better time then any swiss rolex yet people still buy the rolex.


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