iSuppli claims iPhone profit margin is 50%

By Justin Mann on January 18, 2007, 12:53 PM
Usually when it comes to hardware, we don't think of profit margins as being very large, especially not in the PC world. With wholesale sites and large retailers offering the hardware barely above cost, profit margins are usually pretty small. The world of phones is somewhat different, and considering Apple's reputation for having high price tags it's no surprise to learn that the iPhone may have a profit margin as high as 50%. Supposedly, the cost to manufacture the 4GB model will be around $245 (including licensing), making its $499 price tag bring in a nice chunk of change for Apple. The 8GB model is even more profitable, with a cost of $280.

Of course, these figures don't come from Apple - they come from iSuppli, which is doing a 3rd party analysis of an as of yet unreleased product. The figures could vary, but they are not surprising at all. iSuppli feels Apple may be shooting themselves in the foot with these prices:

iSuppli Director and principal analyst Jagdish Rebello said that "With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward." The fierce competition is only exacerbated by service providers who are always pushing deals on handsets as a part of new contracts. Apple's multiyear tie-in with Cingular will limit Apple's reach in the market too, since there are still entire states that have yet to be blessed with Cingular coverage.
Of course, we've all seen how well Apple sells despite higher than average prices. The iPod is the absolute most popular media player out there, and isn't slowing down at all. Even if Apple does have the margins set too high, it probably won't hurt them much. At the very least it gives them plenty of room to play with should they want to price cut in the future.

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