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Report: Apple Gets 50% Margin On iPhone

ISuppli reports that consumers wishing for a cheaper device should have hope. There's plenty of room to lower the cost, and the market may demand it.
Wishing Apple's upcoming iPhone was going to be a bit less expensive?

Well, there's definitely plenty of room for some downward movement, according to an analyst firm.

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

"iSuppli estimates the 4Gbyte version of the Apple iPhone will carry a $229.85 hardware BoM and manufacturing cost and a $245.83 total expense, yielding a 50.7% margin on each unit sold at the $499 retail price," said Andrew Rassweiler, a senior analyst for iSuppli, in a written statement. "Meanwhile, the 8GByte Apple iPhone will sport a $264.85 hardware cost and a $280.83 total expense, amounting to a 53.1% margin at the $599 retail price."

This kind of margin isn't anything unusual for Apple, contends iSuppli.

The company has brought in margins of 45% or more on products like the iMac and the iPod Nano, the analyst company reports, adding that with wild competition in the cell phone/music device market, Apple may need to trim that market to stay in the game.

"With a 50% gross margin, Apple is setting itself up for aggressive price declines going forward," said Jagdish Rebello, PhD, director and principal analyst with iSuppli.

The company, a newcomer to the cell phone arena, faces a bevy of competitors in music phones, with competitors expected to introduce 835 models this year alone. ISuppli estimates that 14 music-enabled mobile phones with features that compete closely with the iPhone already are shipping from companies such as 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, an iSuppli analyst, in a written statement. Other phones with similar characteristics include Nokia's N800, Teng added, although this product is aimed more at niche markets than the iPhone.