Apple's 3G iPhone Appears Profitable 29 comments
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Apple’s (AAPL) 3G iPhone appears to be quite profitable. The fully subsidized price from AT&T (T) is $199/$299 for the 8GB/16GB models, respectively- requiring a 2-year contract. If a current AT&T customer has recently purchased a discounted phone, then the price may increase up to $399/$499, depending on how much subsidy AT&T needs to recover on the old phone. Without a 2-year contract from AT&T, the iPhone will cost $599/699.
The actual amount Apple receives per iPhone is uncertain. Wall Street analysts estimate AT&T is paying a $300-$350 subsidy. The AT&T pricing scheme suggests the subsidy may be as high as $400 per unit.
Even though $200 is the industry standard for smart phone subsidies, there are many reasons that support the higher estimates.
1) AT&T is increasing data plans by $10/mo and no longer offering 200 free text messages. Most iPhone plans will increase by $15/mo. This equates to a $360 increase over the life of the contract.
2) AT&T’s average revenue per user [ARPU] is roughly $50/mo, where the iPhone ARPU is north of $90/mo. Thus, iPhone users generate $960 more per 24-month contract.
Therefore, a $350 subsidy is quite reasonable and perhaps conservative. Using this assumption, Apple receives $550/$650 from AT&T.
A recent estimate by iSuppli puts the production cost at $173 for the 8GB unit. The 16GB model adds only $16 more to cost; yet it sells for $100 more than the 8GB device. Gross profit for the 8GB model is $376 at a selling price of $550. The 16GB model has a gross profit of $460 selling at $650. The gross margins calculate to 68% and 71% for the 8GB/16GB, respectively.
The 16GB adds $84 in incremental gross profit, or nearly a $1/share per 10 million units. Thus, the model mix can significantly impact the income statement.
Initial data suggests that consumers are favoring the 16GB model. This is very positive since the $16GB produces $100 more in revenue and has a higher gross margin.
According to the retail store availability information on Apple’s website, the 16GB model has been dramatically outselling the 8GB model. However, one problem is the supply of 8GB versus 16GB is unclear. Early Saturday, Apple’s website reported 20 stores sold-out of 8GB, versus 28 stores sold-out of 16GB-white and 53 for the 16GB-black. This indicates significantly higher demand for the 16GB models. 
It’s also likely that Apple had a larger stock of 16GB devices due to higher demand for larger capacity historically. In addition, it’s less advantageous to carry too little stock of the higher-priced model since running out of the 8GB may persuade a consumer to trade up to the 16GB. Conversely, higher supply of 16GB models prevents losing potential sales of the higher-priced model when a stock-out forces one to purchase the cheaper model.
A survey by Piper Jaffray of 283 line waiters this weekend reported that 66% planned to purchase the 16GB model. This ratio of 2:1 would support the data gleaned from Apple’s website regarding iPhone availability.
Disclosure: None
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This article has 29 comments:
I purchased my 1st gen iPhone for $400 (8GB) walked out the AT&T store and never activated it with them. All those phones that were being sold on eBay were actually acquired the same way. It was too comon of a practice and all too evident to AT&T that their iPhone sales are much higher than the activations.
This is why they changed the game: now you have to activate it in store so they lock you in with a contract. The kickback is the same to Apple, only that they are not simply distributing phones without any comission, now they pocket the service contract fees(the voice plan) and bill you $10 extra for the data plan to cover the subsidy with some interest on it.
iPhone: The bet Steve Jobs didn’t decline
counternotions.com/200.../
"It’s also likely that Apple had a larger stock of 16GB devices due to higher demand for larger capacity historically" is not true. Stores have had more 8GB unit vs 16GB units. The Rogers stores I was in yesterday finally got replenished after being sold out....and *all* the new units were 8GB, so I walked out without getting one (again!).
I agree the demand is higher for 16GB, but at least here, the supply is higher for the 8GB. Maybe Canada is getting the 8s because of higher supply of 16s elsewhere -- who knows?
How do you think Steve Jobs funded all the new R&D that gave us the first imac to start??
Apple in the 80 early 90 was not financially clueless, Apple was technologically clueless , no new ideas and no new interesting products .. the reason is it was run by good money managers but horrible thinkers
www.geldpress.com/2008.../
Are we at 200 yet ?
Nice rally for the market today.
Are we at 190 ?
180 ?
175 ?
The first iMac came out shortly after Jobs took over. He may have improved the details and future iMacs but most of the R&D for the first one came before his time.
Here we have a story that references websites that guess at the costs of parts, analysts who stand in line and then build some %, a chart that shows the consumer trend between 8g and 16g and what the % of stores that sold out by the day..... I have to ask you, who really gives a sh*t about this info?
How about a story that reads "APPLE STORES SELL OUT OF ALL IPHONES IN RECORD TIME", how about that, a little REALITY, ever heard of it mr. journalist? Who cares about the overdone, dead on the vine story of how much subsidy ATT is paying, who cares? no one, people who own Apple stock want honest stories about Apple not BS to manipulate the stock.
I bought 3000 shares in May of 2007 at $94 and at that time decided to hold the stock for at least 3 years based on the projects Apple had in the pipeline at that time. Watch for 3rd quarter 2008 sales to kill the "experts" predictions, Apples 3rd quarter report will be solid, Apples 4th quarter report will be really solid, Apples 1st quarter report will be followed with a stock split at over $200 and a quick jump back to $150.
Look past the BS stories and remember 50 more countries to come on line for iphone this year, August is school buying time etc.
www.forbes.com/2008/07...
Really ? How come ? Probably I missed it.
Thank you.
I've held Apple stock for four years and I'm still long, but some of the figures I hear don't make sense in this economy.
And about the "200 by year end"... mhhhhhhhhhhh.... I wouldn't count on it.
Charming creature, what's about that "50 countries" ? Can you clarify that to me ?
Thank you.