Apple’s 4GB iPhone costs $200 in components to make. The 8GB model’s parts total just $20 more. So claims US market watcher and device stripper-down Portelligent.
Of course, Portelligent’s numbers – relayed by BusinessWeek – only cover the parts, not the cost off putting them together, shipping the finished product, marketing and, crucially, the cost of the software that makes the iPhone sing.
But it shows Apple is in a good position to make money on the device. Whether you accept the more conservative sales estimates or the most bullish figures, there’s no doubt Apple has sold a fair few iPhones since the device went on sale almost a week ago.
Clearly, the high price of the handset is not putting buyers off to the extent that some observers anticipated it would.
“Is Apple making 270% profit margins on the iPhone?!”, no one knows for sure, but probably. I have been out of electronics manufacturing for 20 years, but the margins on distribution and marketing are subject to scale. The more they sell in a short time frame, the lower the costs. So, maybe yes.
Apple is exploiting the cult mentality. Yes the software is better than the others. Thats only because the others suck ass. Don’t worship, expect better!
Weeeellll, there’s more to recouping their investment in the iPhone than just covering the cost of the parts. I’m not an iPhone afficionado (and certainly won’t buy one while they’re restricted to the shitty ATT/Cingular low-speed network, but what the hell. If people want to drop $600 bucks for a cute-looking cell phone and a glorified Nano, more power to Apple.
Apple isn’t just making money on the hardward, the rumor is that they are also getting a big slice of the service contract. They may be making $300 on the $600 phones from the hardware, after all the costs, and an average of $15 a month on the service contracts. That would be $360 over the two year agreements. I think they’re getting more profit from every sale than the gross sales price for the device. The service profits will have to be reported as a subscription and added to the bottom line as the payments are made so the motherload of money these babies will send to Apple’s bottom line won’t be evident for 6 months to a year. Of course people won’t care how much Apple is making. They’ll continue the buying frenzy because, the iPhone makes all other cell phone look primitive (as one reviewer gushed.) I’ll check back when AAPL hits $200 and the fruit company’s market cap overtakes HP.
I don’t mind so much because they had to manufacture tons of them to be ready for the roll-out.
They gambled big, that it wouldn’t be a flop – and leave them with inventory, like Sony has with the PS3 – so I don’t mind if that bet pays-off handsomely.
Never been in business, eh? Certainly don’t know what you’re talking about when calculating margin.
$500 retail on costs of $200 would be a 60% margin. Whoop-de-doo.
If the other expenses = another $50, the margin would be 50% – a retail standard for decades – otherwise known as keystone. Considered to be nominal target for just about every manufacturing industry around the world. If you want to stay in business.
Geeks should take at least a Biz 101 course.
Now – you can all go back to blathering.
You guys realize that we are talking about $200 in component costs? This does NOT include labour costs, shipping costs, software development, support etc etc etc. It’s just the components which cost $200!!!
It’s just like saying: Windows Vista only costs $5 to make (for the DVD and packaging), so Microsoft take something like a 10000%
Clearly we should have price controls on Apple’s iphone. They shouldn’t be allowed to sell for more than $250. Also, we should have free importation of iphones, and Apple should be forced to sell to foreign governments at the price they deem appropriate.
Considering that their $1,000 iMacs use the same components found on $250 PCs and yet they still sell them I’m not surprised at all about it.
That’s why the superior Archos 605 WiFi will be sold for 199$ starting next week. Archos will be selling with much lower margins but then counting on revenues to come with sales of video-on-demand content.
270%?! Well that does it, I’m not gonna buy one. Of course I never did intend to buy one. Seems to me, actually, they’re just charging what the market will bear, and it clearly will bear the price, for now at least. Let the Apple faithful pay it – no skin off my nose.
Somebody here – I forget who – said he just wants a phone, not a Swiss Army knife that’s also, oh yeah, a phone. It bears repeating.
Considering that their $1,000 iMacs use the same components found on $250 PCs..
Rubbish. That’s the same arguments the anti-mac zealots pull out about the macbook (“I can get a dell with the same specs for cheaper!”).
Of course you can’t. Similar, yes. The same? No. It’s about the quality of the parts (all of them), the build quality, and the likelihood of failure. Not to mention the physical form factor.
I used to build PC’s for, if not a living, then an income, and If you think you can build something that has the same parts and form as an iMac for $250 (ignoring labour costs for now) please tell me where you shop for parts. I’d love a PC like that for that cheap… but it doesn’t happen.
#7, Stefan has it correct. After labor, packaging, marketing, shipping, retail discount, after-market service, and general overhead, I doubt that they are making 40%. That’s only AFTER they get their millions back from product development and research expenses.
Pedro, all that aggression you have towards Apple can mean only one thing… you have iPhone envy. I’ll bet your phone is real tiny.
14. “I’ll bet your phone is real tiny.”
Wow, I’m so old I remember when we used to brag about how small our phones were. Apparently Apple has made huge clunky phones fashionable, all over again!
Apple is going to need all that money for the class action lawsuit to replace all those failed batteries that can’t be replaced.
#16- uhhh they can for a fee…
what ever, they are going to replace failed batteries under warranty for free. After that $80. That does kinda suck but they say it should be 500 recharges before the batteries start to degrade. About two years, and by then most people will want a new phone.
SN, actually you’re not too far off. Since iPhone is more like a hybrid between a Blackberry and a cell phone, it stands to reason that it’s size will be somewhere between… which in fact it is.
#16, there won’t be any lawsuit regarding battery replacement because Apple announced ahead of it’s iPhone debut that the battery would be replaced as a factory service item. If you don’t like it don’t buy it. Interesting to not is that the parts alone in an iphone cost more than the retail price of a blackberry 8700c.
Makes all the money they spend on Human Factors well worth it.
It other companies took HF more seriously Apple wouldn’t be able to do this, nor would their cult following be justified.
Just because they dominate the tech market is no reason to get pissy.
Another thing, Apple has more than tripled it’s share of the OS/computer market over the last 4 years… right out of the clutches of Microsoft. So now when you point out Apples measly share, make sure you upgrade your numbers from 4-5% to 13-14%. Then there’s iPod, and now iPhone. Imagine, if some of you weren’t so negative on apple, you could have made a bundle of money. I invest in products I like. Five years ago, if only you weren’t so jaded…
Apple VS Microsoft
Apple is going to need all that money for the class action lawsuit to replace all those failed batteries that can’t be replaced.
Mr Fusion again trying to throw cold water on a hot product. Were you in the John Dvorak camp thinking the iphone would flop. It kills me how you Apple haters will find any reason to pan this device. Its hot, its selling and it must be killing you. Oh well, get over it.
#22, gq,
Au contraire. I couldn’t give two poops if it succeeded or failed.
I want a cell phone that doesn’t drop calls, doesn’t charge extra because I’m suddenly roaming, where the voice quality remains as good as a landline, has a contract where I don’t automatically lose, and doesn’t cost me an arm and a leg.
I don’t need to be text-messaged, play music, have movie trailers, or a ton of video games at my fingertips.
People are paying all this money plus a higher monthly fee for the service. To have the phone die and not be repairable seems pretty stupid in my books. Who would willingly buy a phone that will only last two years? Oopps, look at all the idiots standing in line.
If what Jim (#19) says is true then great.
And so what if they are?
The same people who complain about electronics markups are the same people who complain about oil companies making record profits – they are in business to make MONEY, not be your friend.
Waah they’re making money on the iPhone! Who would have thunk it?
They cleverly exploited the blind apple fanatics who could wait to drop their shorts at the altar of jobs and his latest piece of hardware – of course they should pay top dollar for being that gullible!
#22, it’s true Mr. F, I swear on the… on the……. crap, what do atheists swear on these days?
#24, Brian, Brian, Brian, it’s okay. We know. So, did you have any trouble activating it?
As someone else mentioned – based on those numbers, they are making a 60% margin. Don’t go throwing around numbers like 270% if you don’t have a freaking clue what you are talking about. Which you don’t.
It does not include shipping, service and warranty, support, sorftware, overhead like the building and power all those engineers use or marketing costs. So in real life their margins are probably 30-40% – which is pretty bad for a high end manufacturer.
What surprises me is so many commenters (and Uncle Dave) actually believe the claim of 270 percent profit. Anyone who has any understanding of manufacturing and marketing would know better.
#26 & 27, wrong
Most of us can do basic math. If $200 is the amount, then multiples of $200 could be represented as multiples of parts per hundred or percent. $200 is 100% of $200.
So $400 would be 200% of $200.
$100 would be 50% of $200
$600 would be 300%.
So if something costs $200 to make and is sold for $600 then it sells for 300% of what it cost to make it. Ya ya, mark-up, profits, advertising, overhead, bribes, insurance, lawyers, freebies, and Job’s cut all add up.
So don’t go throwing around numbers like 40% if you don’t have a fucking clue. Because you don’t. And I don’t think anyone suggested that there was a 270% profit. That was just a question posed in the intro. But I am skeptical it does cost $200 in parts.
Percentages are neet and cool…
but They can be mis-represented…
1% of $1, Isnt very much.
1% of $1,000,000 IS Very much.
And most of the meaning also depends on IF’ you are GETTING that 1% or GIVING that 1%.
Proper understand is expressed AS a % OVER cost.
So, $220 and $500? 127% over cost.
Then take off the 27% per phone for advert, then split the difference between Apple and ATT, And I bet you have about the right prices.
>>The same people who complain about electronics markups are the
>>same people who complain about oil companies making record
>>profits
Naw, they’re not the same people. I don’t give a flying fuck if Apple makes 270% profit, 60% profit, or 1,000,000% profit. iPhones are just status toys for yuppie scum. If you can’t afford one, go down to the mall and get a free phone from the cellular kiosk.
On the other hand, when people can’t afford to heat their home in the winter, or drive to work, because Dick Cheney and his warmongering Energy Cabal want to squeeze a couple more percent profit out of the public, that’s a whole different kettle of fish.
Wow pedro, did steve jobes kick your dog or something. I new mac haters were obsessives but you need some help.
I’s a nice day get out of moms basement and enjoy.