50-percent of your iPhone purchase to pad Apple's wallet?
By Darren Murph 
posted Jan 18th 2007 11:11AM
posted Jan 18th 2007 11:11AM
Sure, LG's KE850 Prada handset will set users back a cool $778, and the Google Switch just might pop in to make things a bit more interesting, but a recent research report has unveiled that Apple's sure-to-be-sold-out iPhone is a lean, mean, profit-generating machine nonetheless. While Apple's well-known for selling its iPods (and to a lesser extent, its Macs) for much, much more than it cost to manufacture, even we're a bit taken aback at how hard those corporate buyers must be workin' those suppliers on this one. According to iSuppli (no affiliation with Apple, of course), the 4GB iPhone will yield a "49.3 percent profit margin on each unit sold at the $499 retail price," while the 8GB rendition will kick back a 46.9-percent margin. You heard right, they're supposing the $499 mobile only costs Apple $245.83 to produce, while the 8GB flavor demands just $264.85. Of course, this isn't the first time a hot-selling product has been broken down by the numbers to prove just how ripped off we're all getting (if these numbers are to be trusted, that is) -- but hey, unless you've got the means to buy capacitors and LCD touchscreens by the boatload, you're probably stuck paying exactly what they ask. Plus if all this sudden competition gets a bit too heated, don't think Apple doesn't have any room to introduce a (highly desired) price drop.
What about research cost? does no one take that into account??
How much is the Cingular subsidy?
Ripped off?
What a stupid comment. 50% margin is common in many industries even those way outside of technology (and they have considerably less investment in R&D, Patents and marketing).
You clearly have never worked at any significant level in a "real" business.
So you listed the total of component costs. So what about:
1) research
2) software development
3) patents and legal
4) trademarking and legal
5) shipping (and markup for the retailer)
6) A building for all those workers to work in
7) benefits for said workers
8) return for shareholders
Seriously.
Riiight... because it's not like it costs anything to, say, develop an entirely new hardware and software platform from scratch.
Bringing bleeding-edge innovations like multi-touch to market before anyone else doesn't require any real R&D; they probably just had an intern do it.
Designing an entirely new finger-based UI paradigm? Intern.
New touch keyboard technology with auto-correction? Intern.
Cramming 2x the technology of most phones into hardware less than 1/2 inch thick? Intern.
Defending the iPhone brand against Cisco? Law student interns.
I'm also sure that when it launches, all the marketing will be designed by interns, and the ad space donated by the Ad Council. Support will be handled by call centers full of volunteers.
Sure, the BoM + manufacturing cost + software royalties may be in the ballpark of $245.83, but to say that means a "49.3 percent profit margin" is just ludicrous.
Their press-release writer messed things up. The actual profit margins are slightly north of 50% -- Read their report @ http://www.isuppli.com/news/default.asp?id=7308&m=1&y=2007 --
“iSuppli estimates the 4Gbyte version of the Apple iPhone will carry a $229.85 hardware BoM and manufacturing cost and a $245.83 total expense, yielding a 50.7 percent margin on each unit sold at the $499 retail price,” said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. “Meanwhile, the 8GByte Apple iPhone will sport a $264.85 hardware cost and a $280.83 total expense, amounting to a 53.1 percent margin at the $599 retail price.”
How ridiculous. As has been said, so many factors have been left out that this doesn't even being to make sense and can't be taken even remotely seriously.
#3 is spot on.
Engadget seems to be taking stupid pills lately. Are you people that hungry for a story? Or do you just really hate Apple?
what happened to Apple making products that would help sell Apple computers?
I guess they can get people to overpay for handhelds much easier than they can get people to overpay for computers.
Erik,
I doubt there is a Cingular subsidy. Cingular just gets to cash-in on the yuppies who switch over to their network and pay the costs of unlimited data.
Rich Brome,
how is this revolutionary? oh because S. jobs said so.
Oh wait, LG already went to market with a similar product while Apple has yet to sell one. Hmmm...
I was really into this iPhone before reading the specification and realizing that it is nothing more than a phone with the apple UI and 4-8GBs of memory.
http://www.freewebs.com/wm5toiphoneskin/
Iphone skin enjoy guys
Since when does a huge company like Apple have to push the R&D costs onto the consumer?
Did MS do that when the Xbox came out? Last I remember they sold it at a loss to the consumer in order to enter the market. But Apple does it and it's okay?
#4 is a dolt. "Bleeding edge"? Please.
Watch this vid from 2/06 and see if it looks familiar. Apple didn't "invent" multi-touch they just bought the license. Half of that phone is just stuff that they bought from other people.
http://ted.com/tedtalks/tedtalksplayer.cfm?key=j_han&flashEnabled=1
How much did it cost for them to leave out "bleeding edge" 3g?
BTW, here is the 1st mobile device with Multi-touch in it, not the iPhone.
http://gizmodo.com/gadgets/smartphones/fics-linuxbased-smartphone-213016.php).
if manufacturing, BoM & hardware are 229.85 and total expense is 245.83, that would equal $16 bucks each for ROI on R&D...
and they plan on selling 10 million by 2008, that's 160 million FIGURED IN for a return on R&D investment in the first 18 months alone.
so shush.
apple charges so [too] much because they're products are that good. you can buy a comparable peecee for 1700 vs. 2700 for the 17" MBP...
the same way you can buy a shirt for 20 bucks at old navy, or 98 bucks at bananna republic. you gotta pay for that quality and logo. go buy a bang & olufsen stereo or a brocksonic stereo, etc etc etc.
I freakin' love the free market! Apple is pretty smart with their pricing cause we all know that at least for the first few months the iPhone is gonna sell like hotcakes. So if demand for the iPhone is high enough at $500, why the hell not sell it and get as much profit as you can?
As far as I see it, the phone isn't overpriced as long as there is still a demand to sustain sales at that price.
Unless iSuppli has an intellimole at Apple, estimating product cost and profit/per/piece is IFFY
I Have been in the telecommunications business for 20 years and the model has never changed if it costs a dollar charge 2 dollars.I mean if you really want to be upset the 7 ft patch cord at home depot that sells for 10.00 costs about 50 cents so I think apples price is just right for the I am on the bleeding edge and have to have it now crowd.
Tony, Mike & Rich:
Okay...point well taken. Yes, there are all sorts of costs, and I'm all for the "idea people" getting paid, but the price point on this cutie may be scaring off A LOT of buyers like me, and wouldn't you rather spread all those overhead costs out over a larger, happier market, who will be brought in the Apple fold by the new device? I've been a PC-user for about 20 years. My husband has an iBook. I've had an iPod for almost two years, and have a slew of Apple-thusiastic friends who have been encouraging me to jump on the bandwagon for years. Researching the iPhone and the possible software on it is the FIRST TIME I ever went over and started exploring my husband's software on his iBook. I wanted to know what the addressbook, the calendar, and the web-browser might be like. And if I decided to buy the iPhone, I might get all cozy and conversant with OSX and be ready to make my next computer an iBook. But with things as they stand, I don't know if I want to spend $499 or $599 to buy a device that has an unfamiliar operating system, figure out how to switch my life from Outlook to iCal, and run the risk of finding out it's not a solution for me. But then again, maybe I'm not their target customer: as I've said before, I don't think there's one device that's going to please every niche. :-)
I don't think everyone hates Apple but getting ripped off is another story. Also, its one thing to make a profit, its another thing to take advantage of consumers. If this were Microsoft, everyone on here would be complaining they aren't like Apple or are trying to hurt the consumer. You are the biased ones. Apple just is getting taking to task on this one and you Fisher Price Folks don't like it. Just live with it! No company if perfect but to flash the dollar figures in our face is ridiculous, let alone have newbies believe its the most revolutionary phone that your God Steve showed. In every device there are hundreds of patents, some from the originating Company, some from others but the cool things of the iPhone are from partnerships with others and not Apple's intellectual property. Wake up and see the forest through the trees...just because Stevie says one thing doesn't mean you believe all of it!
How can you claim to be "ripped off?"
You know what the product is, what it does, and what the price is. If to you, the value you get from the phone is equal or greater to the price charged for it, you buy it. If it doesn't deliver what you consider to be fair value for the price, don't buy it!
Getting "ripped off" would be getting home, opening the box, and finding out it's full of gravel, and not the phone you understood to be in there.
If you can't afford it, or the price is higher than you're willing to pay, just say that, don't bitch at Apple for "ripping you off."
Honestly Malatesta,
I cant seriously believe that you just compared the XBox to the iPhone. Or Apple to Oranges, i mean Microsoft.
The business model for the gaming industry is SO radically different than that of standard computing. The reason Microsoft, Sony, and Nintendo opt to sell their devices at a loss is because theres a PLETHORA of licensing deals in the games development that are going to recoup those looses on the back end. So I am foreced to belive that that statement was made out of pure ignorance.
Apple has to at cost, develope, license, build the device, distribute, market, and sell it as well as service it (well at least half of them), and still manage to make money. Is it over priced? Probably, but thats been the story with apple products since ... before NEXT. Will it be worth it? I believe it will be. Is it the bleeding edge? It will be at least for a hot minute but like with the iMac, and iPod apple has a lot on their side; fierce brand loyalty, great support, an awesome product, great design, and pervasive marketing. All combinations of a lasting brand and successful product, something that has been proven over and over again by Apple.
The magic number in the restaurant industry is something like 76... Whatever the recipe, add up the costs of ingredients and on 76% to that and thats what the dish should cost. These costs include, utilities (ie gas water electric), rent, service (staff), ingredients (duh) and common replacement costs (broken dishes, new linens, etc.). Remember that next time you're ordering at McDonnalds or your favorate ritzy place. Still feel ripped off?
The price will eventually come down on the iPhone as does the price of everything in the tech market. Its a vast improvement on anything that is available now.