It’s easy to understand why iPhone sales have boosted Apple’s stock so much this week when you consider their amazing profit margin:
NEW YORK — Apple Inc.’s shares jumped in high-volume trading Tuesday after researchers said the company will reap a gross profit margin in excess of 55 percent on its 8 gigabyte iPhones.
Apple shares added $5.91, or 4.9 percent, to $127.17 in an abbreviated trading session that ended at 1 p.m. due to the upcoming July Fourth holiday. During the past year, the stock has traded between $50.16 and $127.61, running up in recent months in anticipation of the hybrid cell phone, media player and wireless Internet gadget’s June 29 release.
On Tuesday, the research company iSuppli reported that a tear-down analysis of the iPhone showed its bill of materials and manufacturing costs totaled $265.83. That means Apple would generate a margin of more than 55 percent for every 8 gigabyte iPhone it sold for $599.
Eric Pratt, iSuppli’s senior director of tear-down, said iSuppli is still fine-tuning its report and it now thinks the product’s margin is more than 50 percent, when accounting for factors like royalties and software costs. He wasn’t surprised by the margin, he said, because the company’s earlier research-based modeling called for a basic iPhone cost of $264.85.
Apple does not disclose its margins for specific products but iSuppli’s estimate for the iPhone _ which doesn’t include marketing or research and development costs _ falls in the ballpark of its iPod cousins that were similarly analyzed by the market research firm.
Admittedly, this analysis may not be entirely correct because it doesn’t take into account “sunk” costs such as what it cost Apple to develop and/or license the technology that the iPhone is based on. Nonetheless, it’s pretty clear that they are making a killing on these phones right now, and that there is room for the price to drop and profit margins to still say high.
