Analysts: Apple to Have 50 Percent Profit Margin on iPhone

According to a preliminary bill-of-materials estimate by iSuppli, the $599 Apple iPhone could net Apple over a 50 percent gross margin, the analyst firm said Thursday.

With the cost to manufacture an 8-gigabyte iPhone estimated to be about $280 in total expense, the remainder of the $599 total retail price is estimated to be pure profit — which will flow back to Apple, as the company is forbidding carriers to subsidize or discount the phones.

Unlike other "teardown" services performed by iSuppli, the firm did not have an actual iPhone in hand to disassemble. The company said it was working off of its own component estimates, based on similar teardowns of competing phones, laptops and other devices.

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Working models of the iPhone must also be submitted to the FCC for approval. However, a small number of working prototypes have already been distributed for hands-on previews, proving that the iPhone is nearing its final design.

High-profit products are no stranger at Apple, which has claimed margins of 45 percent on the iPod Nano, iSuppli analysts said, who predicted that Apple will have to cut prices to keep up with the market.

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

Specifically, the 4-gigabyte model will carry a gross margin of 50.7 percent, iSuppli estimated, while th 8-gigabyte iPhone will earn Apple a 53.1 percent margin, the firm said.

In terms of cost, the most expensive component will be either the four or eight gigabytes of flash memory, which provides the local storage for music and other data.

At an estimated $35 for the 4-Gbyte version and $70 for the 8-Gbyte model, the cost outstrips even the flashiest element of the iPhone, the 320x480 touch screen, which is estimated to cost $33.50 for both models, and slightly less than $35 if a controller chip is added in.

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 analyst with wireless communications for iSuppli.

She predicted that OEMs would build phones with a similar look and feel to compete with the iPhone, much as candy-colored PCs competed with the first iMacs and flash-based MP3 players have virtually eliminated hard-drive-based players.

Shipments of music-enabled mobile phones will rise to 618.1 million units in 2007, up 39.9 percent from 441.7 million units in 2006, iSuppli predicts. By 2010, shipments of such phones will increase to 1 billion units, the firm said.