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Apple's Margin Machine

7:30 PM -- Apple Inc. (Nasdaq: AAPL)'s lack of significant hardware updates on the iPhone 4S was a strategic move that lets the company bring in $96 per 32GB phone it sells. (See iPhone 5: Apple Can Have 4G But Not the World and Apple's Latest Is a Faster 3G 'Worldphone'.)

Device teardown experts at UBM TechInsights say the iPhone 4S’s bill of materials (BOM) is similar to the iPhone 4 model launched last year, estimating that the 32GB version costs around $203 to build. So, when Apple sells an iPhone 4S for $299, $96 will be pure profit.



Above is a look at just the costs of the iPhone 4 and 4S broken out, but click here for a larger chart to see what's changed in the new iPhone 4S.

Table 1: Apple iPhone 4 (GSM) & iPhone 4S Estimated BOM
iPhone 4 8GB (GSM) iPhone 4S 32 GB
Display & Touchscreen $31 $31
Processor $15 $26
Memory $15 $38
Baseband & Cellular Radios $16 $24
Camera $14 $18
Battery $5 $5
Connectivity $4 $5
Other $56 $56
Total $156 $203
Source: UBM TechInsights




Even though Apple disappointed a lot of people who got sucked up in the iPhone 5 hype, its incremental approach makes a lot of sense. For one thing, sourcing already available parts to previous generations should help ensure there aren’t any delays, and David Carey, TechInsight’s VP of technical intelligence, says using long-yield components will keep costs down for Apple to achieve economies of scale on parts it's already invested engineering in.

“They are slow to reduce retail price, but try and stay current on innovation curve consistent with flat cost to produce,” Carey explains.

Jeff Brown, VP of business intelligence at TechInsights, adds that Apple also eliminates SKUs to help keep costs down, as it did by making the iPhone 3G S free and now only offering the 8GB iPhone 4. More consumers will upgrade to iPhone 4S for the expanded memory and new features, but Apple will still reach more price-sensitive users as well.

“It’s cost effective to address a large available market for consumers from high-end bleeding edge to the technology holdout,” Carey says.

— Sarah Reedy, Senior Reporter, Light Reading Mobile

acohn 12/5/2012 | 4:51:51 PM
re: Apple's Margin Machine

A recent article in the Wall Street Journal estimated the average selling price for an iPhone to a carrier was in the $600 range.


I think it would be a mistake to assume that the advertised price is the same as what the carrier pays.

alandal 12/5/2012 | 4:51:49 PM
re: Apple's Margin Machine

I second.


100% margin over the material costs should be norm for APPL. Part of that margin, however, would go to cover non-material costs ...somewhere 7-15% of ASP ..

pmicali1 12/5/2012 | 4:51:44 PM
re: Apple's Margin Machine



Based on the experience I gained working with their AppleCare group, part of the customer service within their retail stores and corporate tech support, the margins were actually close to advertised price.  I have to assume that was part of the strained relationship with AT&T when they were still the exclusive carrier since the handsets were so subsidized.

Another huge area for their industry leading margins comes from the sheer verticality of their operations.  They own the chip manufacturing process, the online ecostore, they maintain unbelievable price control for 3rd party distributors, and it helps make up for the premium price they charge on their wide array of products.

 




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