Apple's cool 50% margin on iPhone to generate the iCash

Alex Zaharov-Reutt
Friday, 19 January 2007 12:35

Your IT - Mobility

Having a 50% margin is certainly something very handy to have, as it gives Apple wiggle room to lower margins yet still make money in the future. To this end, Jagdish Rebello, PhD, director and principal analyst with iSuppli said that “With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward”. That, of course, is good news – iPhones are set to get cheaper! And every consumer loves it when prices come down.

To give some extra detail on the competition that iSuppli expect Apple to face in the music phone market, iSupply tell us that 835 models of competing music phones are due this year, with “14 music-enabled mobile phones with features that compete closely with the Apple iPhone already are shipping from manufacturers including Nokia, Motorola Inc., Samsung Electronics Co. Ltd. and LG”.

And now that the iPhone is public knowledge, iSuppli’s Tina Teng, analyst, wireless communications expects “mobile-phone OEMs to introduce models designed specifically to compete with the Apple iPhone. The most successful OEMs will be those already established in the mobile-phone business, that support all file formats and that have excellent sound quality.”

Teng also added that successful OEMs also must have excellent supply-chain relationships with suppliers of the kind of touch screen used in the Apple iPhone.

However, as tough as the competition is, the growth opportunity in mobile phones continues to make the market attractive for OEMs and others.

While Apple wants to ship 10 million iPhones by the end of 2008 (and not 2007 as we saw elsewhere), shipments of music-enabled mobile phones will be huge in 2007. iSuppli is predicting that 618.1 million units will ship in 2007, up 39.9 percent from 441.7 million units in 2006, with shipments expected to increase to an incredible 1 billion units by 2010.

Therefore, Apple’s goal of capturing only 1% of sales in 2008 seems very achievable indeed, and is likely conservative.

Of course, as has been noted elsewhere, Apple may well need the big margin to keep all of those iLawyers paid up. But if Apple really is enjoying such a good margin, ongoing successful sales of iPhones will keep Apple’s cash reserves more than strong enough to continue pumping out successors to the iMac, iPhone and Apple’s other products for many years to come. Thank God – and Steve Jobs – for iThat!