IPhone virtual teardown: Apple margin beats 50%

Based on preliminary analysis of the 3G iPhone, Apple’s new handset may be its most profitable product, garnering better than 50% margins, according to analysts.
Though the grand shift from hardware profits to service-and-application profits has yet to materialize for the mobile industry’s biggest players such as Apple Inc. and Nokia Corp., in Apple’s case, apparently, that’s okay.
ISuppli Corp.’s “virtual teardown” – the teardown firm has not dissected an actual 3G iPhone – pegs the new model’s bill of materials, or BoM, at $173. With carrier subsidies paid to Apple of about $300, the firm estimated, that means Apple is receiving about the same dollars – nearly $500 – as it did for the first-generation product. Yet, with component prices having fallen about 23% since last year, the implication is a greater profit margin for Apple.
ISuppli noted that its estimate is for the device’s gross margin and excludes overhead costs such as software development, shipping and distribution costs, packaging and accessories.
According to Yankee Group analyst Carl Howe, if indeed the 3G iPhone carries a greater than 50% profit margin, it would probably make the device Apple’s most profitable product.
Apple, of course, will as of July 11 sell only two models of wireless handset, a 3G iPhone with 8 GB of memory and one with 16 GB of memory. The firm plans to offer the device initially in 22 countries, with nearly 50 more coming online in 2009. Nokia’s retail presence, in contrast, is global and its portfolio vast.
ISuppli noted that, with its change in business model that eliminates data revenue-sharing with carriers, Apple is more dependent on hardware profits for now. And the predictable, annual decrease in component costs that aid the profitability of all consumer electronics devices will aid Apple in turning out margin-rich handsets, according to the analysis firm.
The bottom line on hardware is the bottom line – for now.
Howe said in a recent Internet post that the iPhone will become Apple’s third major platform (following the Mac PC and iPod) for services and applications revenue.
Indeed, Apple is working to create a marketplace for iPhone applications and services through its App Store, an effort that follows on the company’s iTunes distribution model.
Nokia also is pursuing the shift from hardware to software, noting in its announcement this week that it would buy total control of handset-platform firm Symbian Ltd. and reiterated that it wanted to “get out of plumbing” (i.e., hardware) and pursue software-based services. That move is also evident in Nokia’s Ovi push.
Nokia said it planned to make Symbian open source by 2010, in the hopes of spreading its platform globally to seed the ground for a nascent software-and-services business.

Source: iSuppli