Apple iPhone Margin Crawls Toward 50 Pct

There could be a reason why the newly announced Apple iPhone costs so much - It's generating nearly 50 percent margins for Apple and Cingular.

Although Cingular is the exclusive service provider for the newly announced Apple iPhone, at least for a several years, Apple doesn’t need to worry about revenue – the iPhone is generating a 50 percent margin for partners Cingular and Apple.

With a selling price of $599 for the 8GB version after a 2 year service agreement, hardware costs for the iPhone fall between $264 and $280 dollars ($264 for the 4GB and $280 for the 8GB version) according to iSuppli Corp. While a 50 percent margin may seem high, Apple is currently receiving similar margins on their iMac and iPod nano according to iSuppli. So why does the iPhone carry such a hefty price tag, especially in a market where phones are typically subsidized through service plan contracts? It gives Apple room to play with should they need to lower the price of the iPhone due to stiff competition in the space.

"With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, PhD, director and principal analyst with iSuppli.

Apple’s new iPhone is expected to stir up several verticals including the MP3 player and notebook computer markets. "The iPhone, in concept, hits on almost all of the notes that Origami missed. It prices in at under $600 (granted with a 2 year cell phone commitment), is relatively small, has integrated WAN, and they figured out that by using Synaptics’ technology they could make a touch screen keyboard work. The iPhone’s interface is simple (even though the OS is based on OSX) and they did a great job of eliminating the complexity (in effect they completed where Microsoft didn’t). " says analyst Rob Enderle.

You can see a breakdown of the iPhone hardware costs on the iSuppli website.