Katie Marsal
Each iPhone sold will generate nearly a 50 percent gross margin for Apple Inc. and partner Cingular Wireless, giving the companies a hefty profit, as well as plenty of room for future price cuts, according to research firm iSuppli.
Meanwhile, it said the 8GByte model will sport a $264.85 materials cost and a $280.83 total expense, amounting to a 51.3 percent margin at the $599 retail price.
"While iSuppli has a high degree of confidence in its conclusions, these figures are considered preliminary until we perform an actual physical teardown and analysis of the iPhone," the firm said in a report released Thursday.
The firm added that such a strong hardware profit is par for Apple's course, with the company having achieved similar margins of 45 percent and more in products including the iMac and iPod nano. But with extensive competition in the music-phone market, it may need to cut into those margins to reduce pricing in the future.
"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.
iSuppli noted in its report that Apple is due to face a bevy of competitors in music phones, with 835 models expected to be introduced by various competitors in 2007. It estimates that 14 music-enabled mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola Inc., Samsung Electronics Co. Ltd. and LG.
"In terms of features and form factors, the closest competitor to the Apple iPhone is LG’s KE850, which will ship later this year," said Tina Teng, analyst, wireless communications, for iSuppli. Other phones with similar characteristics reportedly include Nokia’s N800, although that product is aimed more at niche markets than the broad-appeal Apple iPhone, the analyst said.
Shipments of music-enabled mobile phones will rise to 618.1 million units in 2007, up 39.9 percent from 441.7 million units in 2006, iSuppli predicts. By 2010, it sees shipments of such phones will increase to 1 billion units.
"iSuppli defines music-enabled phones as those supporting music file formats, and not necessarily as those tailored specifically for music playback," the firm said. "Thus, this number is much larger than the total available market for music-oriented handsets like the Apple iPhone."
Apple’s goal is to capture 1 percent of these unit sales, which seems attainable, according to Rebello.
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Are those numbers including development costs and other costs related to the product?
It's hard to compare the iPhone to other phones primarily cause there's nothing else like it. Feature to feature comparisons make it look like other phones are on the same level, because the only difference is the iPhone has a "multi-touch screen interface". But that effects virtually all the other features, making it an extraordinary device.
I think that fact is not yet realized by the mass public. Once everyone has seen what this thing can do I think it will explode past 1 percent. Maybe... 3 or 4?
To clarify: I think it will be 3 or 4 since Apple said they're estimate of 10 million is through 2008. I think they'll make over 1% in 07 alone.
it's a great phone, but way to expensive right now to steal too much market share from the big players out there.
I love the phone, but can't see myself spending $500-$600 on a phone after I sign a 2-year contract.
Other than fanboys or people with lots of extra cash lying around, who would spend that much on a phone?
$300-$400 is the absolute most I can see myself spending on a phone.
Hopefully, the price comes down sooner than later.
Aside from that, this Cingular lockdown is a huge deal breaker.
Did Apple think this through?
I don't think they will sell 10 million iPhones by the end of 2008, unless they make some serious changes or come out with new cheaper models.
i think 1% in '07 is completely unreasonable if they are indeed exclusive with cingular. Cingular has a bit over 50 million users.
that means that 1/5 cingular customers will have an iphone by the end of '07.
You have to remember how absolutely gigantic the cellphone market is. 3-4% is ALOT of phones compared to what 3-4% of gaming consols is
1% is a good goal for '08 and theres nothing wrong with exceeding your goal
i think 1% in '07 is completely unreasonable if they are indeed exclusive with cingular. Cingular has a bit over 50 million users.
that means that 1/5 cingular customers will have an iphone by the end of '07.
Except for this thing called "attracting new customers". Which, come to think of it, is obviously what Cingular is trying to do?