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Each Apple iPhone sold will generate nearly a 50% gross margin for Apple and partner Cingular Wireless, giving the companies a hefty profit, as well as plenty of room for future price cuts, according to a bill of materials (BOM) estimate from iSuppli.

iSuppli estimates the 4GB version of the Apple iPhone will carry a US$229.85 hardware BOM and manufacturing cost and a US$245.83 total expense, yielding a 50.7% margin on each unit sold at the US$499 retail price, said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. For the 8GB model, iPhone will sport a US$264.85 hardware cost and a US$280.83 total expense, amounting to a 53.1% margin at the US$599 retail price, he pointed out.

For Apple, such a strong hardware profit is par for course, with the company having achieved margins of over 45% in products including the iMac and iPod nano, according to iSuppli. However, because Apple is facing extensive competition in the music-phone market, the company may need to cut into its margins to reduce pricing in the future, the research firm noted.

Source: iSuppli, compiled by DigiTimes.com, January 2007

More competition ahead…

iSuppli indicated that Apple faces a bevy of competitors in music phones, with 835 models expected to be introduced by various competitors in 2007. The research firm estimates that 14 music-supported mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola, Samsung Electronics and LG.

In terms of features and form factors, the closest competitor to the Apple iPhone is LG's KE850, which will ship later this year, said Tina Teng, analyst, wireless communications, for iSuppli. Other phones with similar characteristics include Nokia's N800, although this product is aimed more at niche markets than the broad-appeal Apple iPhone, Teng added.

Teng said she expects mobile-phone OEMs to introduce models designed specifically to compete with the Apple iPhone. Successful OEMs also must have excellent supply-chain relationships with suppliers of the kind of touch screen used in the Apple iPhone, she added.

However, as tough as the competition is, the growth opportunity in mobile phones continues to make the market attractive for OEMs and others, iSuppli said. Shipments of music-enabled mobile phones will rise to 618.1 million units in 2007, up 39.9% from 441.7 million units in 2006. By 2010, shipments of such phones will increase to 1 billion units. Apple's goal is to capture 1% of these unit sales, which seems attainable.

Source: iSuppli, compiled by DigiTimes.com, January 2007

Selling the iPhone

Apple will offer the Apple iPhone through US mobile-phone operator Cingular Wireless and Cingular is expected to sell iPhone at full price, without the kind of discount subsidy commonly seen in the mobile-phone business, iSuppli said. iSuppli vice president Dale Ford believes that Cingular stands to benefit enormously from this deal as subscribers may switch to Cingular to get the Apple iPhone, so the company is likely to gain a tremendous number of net adds in the second half of 2007.