Apple is set to hit consumers with a 50% margin on their new Apple mobile phone. Most rival phone companies operate on a 20% margin.
The popularity of Apple’s iPod digital music players has created a hype surrounding the phone, scheduled to be launched in June, that should put Apple at the top of the profitability heap at least initially, iSuppli analyst Jagdish Rebello said.
“That’s extremely, extremely high in this business,” he said. “Apple, at least when it enters the market, is entering it as a niche player. It’s able to build on the success of the iPod.”
iSuppli used the phone’s expected initial sale price of $499 and an estimated manufacturing and bill of materials, such as hardware and software, of $245.83 for its gross margin calculation of 50.7 percent for the 4 Gigabyte iPhone model.
But other Wall Street analysts’ estimates for iPhone margins are more conservative. Shannon Cross, an analyst at Cross Research, said in a note to clients she expects Apple to have a gross margin on the iPhone of about 22 percent.
Rebello expects the 8 Gigabyte model, set to retail at $599, to cost $280.83 to make, implying a 53.1 percent margin.
In comparison, he estimates average comparable margins are about 20 percent for the most expensive phones from established cell phone makers such as Nokia, Motorola and Samsung .
Deutsche Bank analyst Brian Modoff, who covers cell phone manufacturers, estimated traditional cell phone makers tend to achieve gross margins of 40 percent to 45 percent for their high-end phones.
He estimated Nokia derives about 10 percent to 15 percent of its operating profit from high-end phones, which only bring in 10 percent of its revenue.
Apple said in its latest quarterly report on Wednesday that its overall gross margin was 31.2 percent.
But Rebello expects the iPhone’s margins to decline as the phone price comes down in the months after its launch, as is typical for mobile phone pricing trends.
“After about six months, they’ll probably start dropping the prices,” he said, noting that prices fall as demand tends to ease for even the hottest cell phones when consumers turn their attention to the next newest thing.
“You’ll see the price drop quite rapidly in 2008,” he said.
In the US AT&T’s wireless division, Cingular, which is being rebranded as AT&T, has an exclusive agreement for at least two years to sell the iPhone in the United States. Telstra is trying to reacch the same agreement with Telstra. Hover insiders say that Vodaphone are also in the running.
