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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: Is Apple different than MS
By holywarrior007 on 6/25/2009 11:33:40 AM , Rating: 1
To earn the profit might be the goal of every company. However, corporations should also practice people oriented pricing sometimes. If the reports are true than the profit on the iPhone is much more than the original price itself. I would not consider it to be a good business practice.

Of course, people would pay if they think that is the best option they have got, and they can afford it. I am not complaining. Just putting forward my point.


RE: Is Apple different than MS
By TomZ on 6/25/2009 11:40:09 AM , Rating: 2
quote:
However, corporations should also practice people oriented pricing sometimes.
I disagree. Companies should study the demand for their product at various price points and pick the price point that maximizes overall profit. That's "Business 101" and any company with outside shareholders not doing that should have their management fired.

If, on the other hand, someone owns their own company and decides to use "people oriented pricing," then I think that's just fine.


RE: Is Apple different than MS
By holywarrior007 on 6/25/2009 12:19:48 PM , Rating: 1
So u support the greed of many over the greed of one? But why someone would decide about the people oriented pricing when people (shareholders) don't want themselves? Your arguments are fine as they reflect that you do have an acute sense of doing business and earning profits. However, there is one more way of earning more profits which is to make products more affordable yet retaining the quality, and I think that's not a bad business model too.


RE: Is Apple different than MS
By TomZ on 6/25/2009 12:49:49 PM , Rating: 3
I already stated that I think that companies should price their products to maximize profits. That is not in contradiction to your statement that a company could earn more profits by lowering the price.

I also don't understand your notion of "greed." A company that is producing a product that people like and are willing to pay for - that is not greed in the negative sense that you are implying. If that is what you consider greed, then I'd say that "greed is good."

After all, people striving to produce something better, with the ultimate goal of self-enrichment - is what drives our society to collectively great achievements in the business world. A large portion of our civilization is built based on the type of motivation which you label "greed."


RE: Is Apple different than MS
By omnicronx on 6/25/2009 12:30:49 PM , Rating: 2
quote:
I disagree. Companies should study the demand for their product at various price points and pick the price point that maximizes overall profit. That's "Business 101" and any company with outside shareholders not doing that should have their management fired.
Now if only it were so clear cut. Business 101 would also teach you that if these maximized profits are not sustainable, then you could easily end up in a far worse position down the line.. Just ask GM..


RE: Is Apple different than MS
By TomZ on 6/25/2009 12:54:29 PM , Rating: 2
I don't see any risk in profits that are "not sustainable," so long as you manage your overhead costs so that you can cut prices in the future when/if competition requires it. I think Apple is perfectly positioned in that sense.

GM is an entirely different situation, since they had high labor costs forced upon them by the unions back when they had a monopoly. I don't see Apple doing the same. Apple's labor is a small part of their costs for their hardware, as it's all built overseas with cheap labor.


RE: Is Apple different than MS
By omnicronx on 6/25/2009 1:16:46 PM , Rating: 2
quote:
I don't see any risk in profits that are "not sustainable," so long as you manage your overhead costs so that you can cut prices in the future when/if competition requires it.
That was pretty much the point I was trying to get across, I was not trying to take anything away from Apple and their business strategy, nor was I trying to directly compare them to the crappy management of GM.

One thing I would like to mention though, the cell phone industry is not the PC industry, if Apple treats it as such they could be in for a big surprise. I think they will soon be forced to diversify into more than a single line or people will get bored.


"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch














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