iPhones unlocked or on shelves? Both bad for Apple

Stan Beer
Sunday, 27 January 2008 06:45

Business IT - Technology

The past week has revealed a large discrepancy between how many iPhones Appled shipped to resellers by the end of 2007 (3.7 million) and how many were activated on contracts (about 2.4 million). Since then, arguments have raged as to how many of the unaccounted for iPhones have been unlocked and how many are sitting on store shelves. Whatever the answer, it's bad news for Apple.

Many Apple fans have been quick to jump in and claim that most of the "missing" iPhones have been simply unlocked believing this somehow is better for Apple. One blogger on a well known site even claimed that all of the 1.3 million shipped iPhones not on a contract have been unlocked.

What these fans don't seem to understand is that at $399 retail, Apple could not possibly be making much if anything on unlocked iPhones. Some estimates have put the bill of materials cost on this rather complex item of hardware to be more than $300. Add to that distribution costs, warranty and retailers' margins and there is not much left if anything for Apple. In fact, an unlocked iPhone at $399 is most likely a losing proposition for Apple.

Anyone who doubts this should look at the uncontracted retail prices of the iPhone's competitors. In the US, the Nokia N95 8GB  sells for $779, Blackberries without memory expansion cost around $600 or more, if you want an HTC TyTN II you'll pay more than $800.

The fact is that iPhone, which reportedly gets a $18 per month cut from a two-year standard AT&T plan, is a subsidised handset. That may not have been the case when it was selling for $599 but at $399, the iPhone needs to be attached to a contract which pays $432 over two years to make money for Apple. An unlocked iPhone is a loss maker.

This begs another question which has been asked before: why did Apple drop the price of iPhone by $200 less than three months after its release? Even loyal Apple fans threw up their hands in disgust, forcing Apple to compensate them to the tune of $100.