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Apple's iPhone could turn out to be one of its best profit makers

Apple was laughing all the way to the bank during Q4 2006 when it enjoyed brisk holiday sales. The company saw its profits jump 78 percent from Q4 2005 and saw its iPod shipments grow 50 percent to 21 million. iPod sales alone accounted for $3.43 billion of Apple's $6.42 billion revenue for the quarter.

Apple may have an even better Q3 and Q4 once its iPhone is released in June of this year. According to iSuppli Corp., Apple will maintain nearly a 50 percent gross margin with the iPhone according to Bill of Materials (BoM) estimates.

The 4GB iPhone, which will retail for $499 with a 2-year contract, has estimated hardware and manufacturing costs of $245.83. The $599 8GB iPhone (with 2-year contract) has estimated manufacturing and hardware costs of $280.83. This results in gross margins of $49.3% and 46.9% respectively.

"With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello of iSuppli.

iSuppli notes that these figures are preliminary and that it may revise the estimates once a physical teardown of the actual devices are performed. The company does note, however, that gross margins in excess of 45% have been documented in the past for other Apple products including the iMac and iPod Nano.





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Touchscreen is suck
By msva124 on 1/18/2007 2:11:40 PM , Rating: 2
Too bad people actually have to buy it first.




RE: Touchscreen is suck
By edpsx on 1/18/2007 2:21:18 PM , Rating: 2
And people complain about the PS3 pricing.. lol! It is one slick looking phone though, if it was more feature rich then I would consider giving up my Treo 650 for it. If you make an all touchscreen phone it has to be this big otherwise you would "fat" finger all the keys.


RE: Touchscreen is suck
By msva124 on 1/18/2007 2:36:39 PM , Rating: 2
Yes, that is true about "fat" fingering.

The iPhone will sell well, like any product that has some good things about it. It's just not gonna be an iPod. Very few products achieve the level of success that the iPod has.


RE: Touchscreen is suck
By Exodus220 on 1/18/2007 2:54:22 PM , Rating: 1
If the PS3 had an Apple logo on it, came in the Apple white, could play MP3's like an iPod, and could fit in your pocket then I am sure people would pick it up like they do their precious Apple products. Oh, and it needs to have a touch screen too so that you can do that nifty stretch thingy.


RE: Touchscreen is suck
By UsernameX on 1/18/2007 3:00:11 PM , Rating: 2
quote:
If the PS3 had an Apple logo on it, came in the Apple white, could play MP3's like an iPod, and could fit in your pocket then I am sure people would pick it up like they do their precious Apple products. Oh, and it needs to have a touch screen too so that you can do that nifty stretch thingy.


Well of course I would pick one up, and not because I'm an apple fan. But to have a PS3 in your pocket??? Who wouldnt pay 600 for one of those... I mean common.


RE: Touchscreen is suck
By Mudvillager on 1/18/2007 3:31:59 PM , Rating: 1
For the love of god, stop the Apple-bashing before I go crazy or something.


RE: Touchscreen is suck
By Exodus220 on 1/18/2007 3:35:18 PM , Rating: 4
Apple makes the most popular MP3 player on the planet. Even though I don't care for Apple, they must be doing something right with their MP3 players. However, I do not understand why the rest of the industry cannot create a media player as popular as Apple's.


RE: Touchscreen is suck
By edpsx on 1/18/2007 4:45:55 PM , Rating: 2
Thats because they where first to hit it big, and everyone knows their name. Now if you ask someone who Sansa or Creative are and they probably couldnt tell you who that is, even though they may have a superior product. (not saying they are its just an example) I for one hate my video ipod, batteries dont last long enough and the video is a joke. It plays one format on a screen so small you have to squint to watch it.

My $.02


RE: Touchscreen is suck
By Omega215D on 1/18/2007 6:54:27 PM , Rating: 2
Nah, SanDisk and their Sansa have more features but sound isn't too great. The IPOD is actually on par with it on sound. Creative has much better quality but looks like a cheap toy. Rio had the first mp3 player but that was in a time when mp3 was a nerd only affair.

This iPhone contains a PDA, cellphone and a flash based iPod in one machine so I could easily see this being in the $4 - 500 range after contract rebates.


RE: Touchscreen is suck
By MobileZone on 1/19/2007 9:14:11 AM , Rating: 5
HA! I love when people start talking about mp3 player's sound quality. These days almost everyone knows about absolutely everything, including physics, nano technology, politics, economics and so on. Mac users? These always know even more including sound engineering and audio quality.

GIVE ME BREAK. Does anyone really think that ipods sound quality is superb or way better than any other portable player around? Is it because ipods are 192 kHz/48bit and all circuits and connections(including the phones wires) are made of pure gold?. If you wanna talk about "hi-end sound quality", the first thing you should do is throw away your mp3 player, also know as "ipod".

Just like the 16 y/o girl that thinks that her 1K Mac book is faster & better than a 3K Sony, Toshiba or whatever.


RE: Touchscreen is suck
By MobileZone on 1/19/2007 9:17:58 AM , Rating: 4
Just to finish,

NO MP3 player (ipod, apod, bpod or cpod) sound quality is better than a US$20 CD-player with the same headphones. Period.


RE: Touchscreen is suck
By Exodus220 on 1/18/2007 7:15:34 PM , Rating: 2
I guess you could say that MP3 player and iPod have become synonymous in our language because iPods are so popular and commonplace.


Rotten Apple
By Misty Dingos on 1/18/2007 2:06:01 PM , Rating: 4
Am I the only one that thinks this phone is too big? I thought that phones were getting smaller not bigger. I am sure that this is a capable phone but I really don't want to carry around a fragile, expensive, overpriced, over featured, over sized cell phone. Can you imagine the belt holsters for this things! I can imagine conversation starters like this on. "Hey George is that an IPhone or are you carrying a first gen PDA with you? Or is it a broad sword? Or part of a dash board from a 747?"




RE: Rotten Apple
By Cullinaire on 1/18/2007 2:26:11 PM , Rating: 5
"or are you just plain happy to see me?"


RE: Rotten Apple
By rklaver on 1/18/07, Rating: -1
RE: Rotten Apple
By clayclws on 1/18/2007 4:51:04 PM , Rating: 2
I am a Chinese and my fingers are not small. Yao Ming is Chinese and I bet he has larger palm than yours...and everything else as well.

Anyway, I love large screen phones...not large phone. I think that iPhone has a real good design...don't know about the final product, but from the specs, it seems awesome. And with the cool interface, and method of operations (touch, slide, glide, etc.), this phone is bound for success.

However, Apple would need to update the phone much like they did with their iPods with 3G, WiMAX, etc. since the phone's technology (apart from the patented touchscreen operations) is almost obsolete when it comes out.


2 year contract = even more profit
By dgouldin on 1/18/2007 1:40:34 PM , Rating: 2
And those figures aren't even counting the kick back Apple's sure to get from Cingular for the 2 year contract requirement.




RE: 2 year contract = even more profit
By boobot on 1/18/2007 1:48:06 PM , Rating: 1
And you thought Microsoft was bad....who do you think Jobs learned from!


By novacthall on 1/18/2007 2:12:10 PM , Rating: 2
It's not necessarily good or bad, per se. It's capitalism.


By JeffDM on 1/18/2007 2:27:04 PM , Rating: 2
I'm wondering if Cingular's just going to keep that extra bit that's being "subsidized" by the contract, that the $499/$599 is going to Apple.


Price!?!?!
By achintya on 1/18/2007 2:11:37 PM , Rating: 2
Why don't they reduce the prices a bit further if they have such high profit margins. That way they attract more customers and thus make an overall higher profit. Even a 5-10% reduction would lead to much wider appeal to customers. A $350 phone with the features of the iPhone is highly desirable as well as affordable (comparatively). I would go in for one just for the looks and the appeal then.




RE: Price!?!?!
By JeffDM on 1/18/2007 2:22:03 PM , Rating: 2
Gross margin doesn't say how much actual profit is made on the device, nor does it account for all the expenses involved in designing, maintaining, marketing and distributing the device.

For a long time, Apple made an average 10% net profit, which is pretty good for the electronics industry. Still, cutting out that 10% to skate by on no profit wouldn't result in much cost reduction. I don't think dropping the phone to $450 and $550 would result in a flood of increased sales.


RE: Price!?!?!
By Lifted on 1/18/2007 2:25:03 PM , Rating: 2
These phones will be impossible to find at first. They will being flying off the shelves faster than the Wii. When sales start dropping off then the prices will drop to keep up with consumer interest. That's capitalism. Do you really think a company with $20+ billion in annual sales doesn't have experts figuring out how to maximize their profites with this phone and all of their other products?


Right.
By RMSistight on 1/18/2007 2:20:46 PM , Rating: 2
You mean IF Apple is able to even sell the iPhone with pending litigation from Cisco.




RE: Right.
By JeffDM on 1/18/2007 2:24:09 PM , Rating: 2
That's only a dispute over the name, not the device itself. The phone will be sold, the name of the phone is in slight to moderate jeopardy. So Apple changes the name, I don't think that's a big deal.


Margins?
By mydogfarted on 1/18/2007 5:41:50 PM , Rating: 2
People seem to forget that Apple is not getting the entire $499/$599. They sell them to (insert wireless provider) at wholesale costs. The provider then gets the $$$ between their costs and Apple's suggested MSRP.
Sure, Apple will probably sell them directly as well, and get the entire profit. God forbid a company tries to make a profit.




RE: Margins?
By rockyct on 1/18/2007 8:55:59 PM , Rating: 2
We obviously don't know the business details in their agreement, but I'm sure Apple will get close to the $500 or $600. In fact, I wouldn't even be surprised if they got that plus an additional amount. Cell phone companies almost never make money on the phone because the money is in the service agreement and will take a hit on every phone they sell. Considering the Apple name and that this is trying to be the next iPod, Apple is going to get a sweet deal.


...
By AmpedSilence on 1/18/2007 1:49:38 PM , Rating: 2
well, thats a bit upsetting. First of all, that is a crazy amount of money to pay for a phone, IMO.

But i guess when the first gen RAZR came it was right around this price, but dropped really quickly after about 6 months or so. (i used to own of those before it was stolen)




ERROR
By CSMR on 1/18/2007 10:37:07 PM , Rating: 2
The margins have not been calculated correctly. The margins should both be greater than 50% and the second higher than the first.




Sick of it.
By phaxmohdem on 1/18/2007 10:41:47 PM , Rating: 2
Sorry guys, but there is only one true iPhone.

http://www.angelfire.com/space2/landony/MechDescri...




I love Apple So much!
By Senju on 1/18/2007 10:52:28 PM , Rating: 2
Here is yet another great product from Apple. I am looking forward to getting the iphone and everyone I know does too. Here they go again, Apple provide cool, great and fun product that make my life much better. :D Thank you Apple! Happy days are coming.....:D




By One43637 on 1/18/2007 3:09:25 PM , Rating: 1
like a lot of people, i was excited and very interested in picking up the phone when it was first announced. then i started looking at the features, or lack thereof.

i didn't let the fact that it had a touch screen with no number pad with grooves or markings to make dialing by touch easy as long as it had voice dialing... then i read somewhere that it didn't have voice dialing and that killed a lot of my enthusiasm.

then there's the internal battery that could be an issue. i'm basing my skepticism from the early generations of the iPod. hopefully after 6 generations of iPods, this won't happen with the phone. 5 hours of talk/video/browsing doesn't seem like a long time either.

i'm also hoping that when they do release it in June it will be compatible with GSM and not just Cingular's Edge.




Puzzled?
By INeedCache on 1/18/2007 6:24:21 PM , Rating: 1
Seems like quite few in this thread are trying to downplay the tremendous profits Apple is raking in from their overpriced stuff. Notice I didn't call it junk or garbage, it's not, it's just overpriced. This is obvious by the amount of revenue posted over the last few quarters. Some of you seem to think that 50% gross profits gets whittled all the way down to around 10%. I think you'd better think again. Contrast this with the MS Vista thread where most of what you have is people complaining about the price, and how much profit MS must be making. So, what really puzzles me is how Apple comes off as this great company just trying to squeeze out a few bucks profit, while Microsoft is just absolutely greedy, is making money hand over fist, and is gouging everyone. I don't find one to be any better/worse than the other. They are both big businesses using their market share to enhance profits. It's capitalism. You cannot logically say MS products are overpriced and Apple's are not, or vice-versa. They both are, but it's what the market will bear. Lots of other stuff is overpriced, too. Seems there are plenty of folks who need to wake up and smell the coffee and quit being useless fanboys.




"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)













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