Existing users, 
iPhone 3G: $100 to make, $325 subsidy — really?
Posted 19 June 2008 @ 11am in News
Two suspect reports today from two different analysts would have Apple spending $100 to make each iPhone 3G and reaping a $325 subsidy on each device from the company’s US wireless partner, AT&T. With a sale price of $199 for an 8GB iPhone, that would put Apple’s profit at $425 per phone — representing an obscene and highly unlikely gross profit margin.
The $325 subsidy number comes from Oppenheimer analyst Yair Reiner in a Barron’s Blogs post. Carriers generally pay a maximum $200 subsidy for mobile devices, according to the report. The analyst also claims that AT&T is paying Apple an extra $100 for subscribers signed up in Apple stores, for a total commission of $425 — really?
The $100-to-manufacture figure comes from Portelligent Inc., which doesn’t even claim to be in possession of an actual iPhone 3G for tear-down analysis. “The first phone had a bill of materials estimated at $170 at launch, but the iPhone 3G could have a BOM as low as $100 when it debuts July 11″ reports EE Times.
Apple doesn’t break out gross margins by product in its quarterly financial reports, but the company posted a 32.9 percent overall margin in its second fiscal quarter of 2008, down from 35.1 percent in the year-ago quarter.
Feedback? info@iphoneatlas.com.
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3 Comments
Posted by shaneblyth
19 June 2008 @ 5pm
What a pointless way of trying to work profit out anyway.
So even if these people that have no current iphone somehow magically know what the component costs are and they are $100 how can they say anything above that is profit!
Lets see no one at the store that sells them get paid the store costs nothing to run, there was no one or facility to pay for research and development on either the software or hardware, no one has to pay tax on anything… shall i go on. Lets play a new game called spot the brain cell of the person who ever runs or works for EET Times who worked out this amazingly accurate price.
Posted by gunnerdoggy
20 June 2008 @ 1pm
shaneblyth is right, this is like saying “there is $1500 worth of metal in my car, so Ford made $20,000 profit.” Be careful, don’t believe everything you read.
Posted by hawkeye52241
21 June 2008 @ 9am
I actually think the subsidy guess from these analysts is on the low side. Remember that Apple was previously getting $400-$500 per phone PLUS fees from ATT amounting to $100-200 over 2 yrs. So AAPL was probably getting about $500-600 per first gen iphone. This is a company that charges premium prices for premium products. So I think the minimum they would want for the 3G is $500 (and more likely $600).
However, one other factor to remember is that the unlocked price of an 8GB iphone 3G in the UK will be 350 pounds (about $680 - from O2 announcement). I think this is much more likely to be the amount that AAPl wants from carriers in terms of subsidy plus cost of phone. So the subsidy from ATT is likely going to be $480 per phone.
And this is not outlandish - if you look at the prices of non apple smartphones in ATT stores that are sold without a commitment ($500-600). And the N95 is $700!!! I think it is reasonable that AAPL will charge a small premium to most smartphones.