Business Brilliance? Apple iPhone Profit Margin Narrowed Down To 55%

Cupertino (CA) - We may criticize Apple for its business practices, but there is no doubt that there are few other hardware manufactures that can offer their products at similar profit margins as Apple (and convince people to stand in line for them.) According to iSuppli, Apple’s profit margin of the iPhone 3G (excluding research, development and marketing) is in the neighborhood of 55%.

In an updated teardown report, the market research firm indicated that the huge margin is a result of an adjusted business model as well as a reduced manufacturing and component cost in the new iPhone. iSuppli slightly corrected its original $173 cost estimate to $174.33 when it was able to look at the actual hardware of the 8 GB device. The cost is down more than 23% from the $227 price tag iSuppli estimated able to have spent on the original iPhone.

iSuppli’s numbers only include of the iPhone’s combined Bill of Materials (BOM) and manufacturing expenses. The total doesn’t include other costs, including software development, shipping and distribution, packaging and miscellaneous accessories included with each phone.

However, the company noted that Apple may be spending an additional $50 per unit in royalties. Considering the fact that Apple is selling the product at a price of $499 and is spending $224.33 to produce each device the BOM, manufacturing and royalty margin ends up at 55% for each 8Gbyte iPhone 3G unit sold. The actual margin could be slightly lower, if we count in marketing cost (usually about 7-9% of unit cost) and especially if we count in research and development cost.

"The addition of 3G wireless capability represents an evolutionary design step for the iPhone, not a revolutionary one," said Andrew Rassweiler, teardown services manager and principal analyst at iSuppli. "iSuppli believes Apple aimed for a more cost-effective design for the 3G iPhone compared to the 2G, in order to lower the retail price, which will allow the company to seed adoption and to capture maximum market share now while the company still has buzz and a perceived differentiation relative to its competitors."