Apple boosts margin on iPhones

A teardown analysis of the new 3G Apple iPhone has shown Apple has boosted its profit margins on the device while simultaneously lowering price.

Analysts iSuppli estimate the new 8GB iPhone costs US$173 (AUD$180) in parts and manufacturing costs, and costs consumers US$199 (AUD$207). However, the handset is subsidised by the network operators and the analysts estimate this subsidy could be as high as US$300 (AUD$313) per handset.

“The original 2G phone was sold at an unsubsidized price of US$499 (AUD$521),” Dr. Jagdish Rebello, director and principal analyst for iSuppli said.

“However, at a retail price of US$199 (AUD$207) for the low-end 8Gbyte version of the new 3G model, wireless communications service carriers will be selling the product at a subsidized rate, using a common business model for the mobile-handset market.”

“This means that with subsidies from carriers, Apple will be selling the 8Mbyte version of the second-generation iPhone to carriers at an effective price of about US$499 (AUD$521) per unit, the same as the original product.”

The most expensive modules of the phones hardware were the NAND Flash memory and the improved display according to the teardown estimates. One of the cheaper parts is the GPS module, which the analysts estimate to cost just US$3.60 per unit.

The analysts estimate that versions of the iPhone were around a 50 percent margin per handset, but that with the subsidy from the network providers Apple was now making even higher margins.

“Hardware is vital to Apple profits, valuation and revenue in the consumer-electronics and wireless communications realms,” Rebello said

“In fact, two-thirds of Apple’s revenue from the iPod still is derived from hardware, while only one third is from the iTunes service and accessories. The second-generation iPhone is no exception.”