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Shares of Apple rise in reports of 55 percent profit margin on iPhone

Following various dissections of the red-hot iPhone, analysts are estimating that each unit is selling for more than double manufacturing costs.

Austin-based firm Portelligent estimates that it costs $200 in materials to manufacture the 4GB version, and $220 for the 8GB, reported BusinessWeek.

Earlier this year, analyst firm iSuppli (no relation to the iPhone) estimated that iPhone gross margins will be around 50 percent, according to its early bill of materials figures. Following the launch of the iPhone, iSuppli has updated its cost estimates, putting the cost of the 8GB version at $265.83, up just over a dollar from its $264.85 figure from January.

In its January cost estimates, iSuppli added non-hardware costs of almost $16 to include EDGE royalties, operating system costs and other software for a grand cost total of $280.83.

With the 8GB iPhone selling for $599, Apple is generating a margin of more than 55 percent for each device sold. Eric Pratt, iSuppli's senior director of tear-down, said in an AP report that iSuppli is still fine-tuning its report, but believes that the product's margin is more than 50 percent even when accounting for factors like royalties and software costs.

News of iSuppli’s cost estimates proved to help Apple’s stock, with it up nearly 5 percent, or $5.91 following the release of the report. With the iPhone selling 525,000 phones in its first three days of availability, the device could have already generated around $150 million – certainly good news for investors and a reason for the stock to jump.

The healthy margin for the iPhone isn’t only good news for Apple and friends, however, as consumers who cannot presently afford the shiny toy have a reason to be pleased. The margin space will give Apple greater freedom to drop prices sooner than if every iPhone were sold closer to cost.

“With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward,” said Jagdish Rebello, PhD, director and principal analyst with iSuppli.

Despite tear-down analysts’ best efforts, nailing down the bill of materials for the iPhone isn’t an easy task, as not all of the components that make up the device are of clear known origin. For example, the iPhone’s touchscreen – one of the components estimated to be the costliest – bears no markings to give clue as to which manufacturer it came from. The best guess that analysts can put together is that the screen is made by German company Balda.

It is also not known exactly which company is building the iPhone for Apple. Although Chinese company Foxconn makes iPods, which put its company fingerprints all over the music player, there isn’t a signature from the maker of the iPhone. Foxconn has declared that it is not manufacturing the iPhone.

“A great deal went into the internal mechanics and how it all came together,” said David Carey, Portelligent's CEO. “There are lots of tiny nooks and crannies where things have to be very precisely tucked in to make it all fit together.”

“You have to build something like this in a place where labor is inexpensive,” says Carey, which BusinessWeek believes means China. But Carey says it's unclear who manufactured the iPhone: “There are no markings indicating exactly who built it.”

In terms of money generation, Apple won’t just be profiting from the iPhone alone. The company is also offering a full line of appropriately themed accessories from Bluetooth headsets to charging cradles. For iPhone owners with battery woes, Apple will charge $85.95 as part of its replacement program.





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