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iPhone to generate 50% gross margin for Apple

Posted: 22 Jan 2007     Print Version  Bookmark and Share

Keywords:iPhone  Apple 

Every iPhone unit sold can generate a 50 per cent gross margin for Apple Inc. and partner Cingular Wireless, according to iSuppli Corp. In its preliminary functional BoM estimate, the research firm forecasted that the product will give the companies a hefty profit, as well as plenty of room for future price cuts.

The research firm said that it is releasing a preliminary prediction because they are yet to perform an actual physical teardown and analysis of the Apple iPhone.

"iSuppli estimates the 4GB version of the Apple iPhone will carry a Rs.10,416.80 ($229.85) hardware BoM and manufacturing cost and a Rs.11,141.02 ($245.83) total expense, yielding a 49.3 per cent margin on each unit sold at the Rs.22,614.68 ($499) retail price," said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. "Meanwhile, the 8GB Apple iPhone will sport a Rs.12,003 ($264.85) hardware cost and a Rs.12,727.22 ($280.83) total expense, amounting to a 46.9 per cent margin at the Rs.27,146.68 ($599) retail price."

"With a 50 per cent gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, iSuppli director and principal analyst. The research firm noted that the competition in the music-phone market may lead Apple to cut into its margins to reduce future pricing.

Another perspective
The iPhone is also seen to represent a market shift towards cellular-based media devices. David Kerr, VP of the global wireless practice ('s' in verb form), Strategy Analytics said, "One benefit we are already seeing is a greater emphasis from handset OEMs on improving usability and making interaction with the handset easy and intuitive for media and productivity applications."

Nonetheless, Strategy Analytics also noted that the lack of W-CDMA support in iPhone may prevent it from hitting Apple's volume projections.

"It is possible that the lack of 3G cellular connectivity on the phone could be a bigger issue than Apple is ready to admit," said Chris Ambrosio, director, Strategy Analytics. "This puts significant pressure on the iPhone to be a strong performer out-of-the gate. Europe operators, who are increasingly willing to offer devices that emphasise off-portal content, if it helps drive their overall branded services value, will be watching early iPhone performance closely to determine how much impact the non-WCDMA iPhone has on Cingular Wireless churn and growth metrics. This will be a key determinant of whether it is worth adding to their increasingly 3G-focused portfolios."

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