50-percent of your iPhone purchase to pad Apple's wallet?

Sure, LG's KE850 Prada handset will set users back a cool $778, and the Google Switch just might pop in to make things a bit more interesting, but a recent research report has unveiled that Apple's sure-to-be-sold-out iPhone is a lean, mean, profit-generating machine nonetheless. While Apple's well-known for selling its iPods (and to a lesser extent, its Macs) for much, much more than it cost to manufacture, even we're a bit taken aback at how hard those corporate buyers must be workin' those suppliers on this one. According to iSuppli (no affiliation with Apple, of course), the 4GB iPhone will yield a "49.3 percent profit margin on each unit sold at the $499 retail price," while the 8GB rendition will kick back a 46.9-percent margin. You heard right, they're supposing the $499 mobile only costs Apple $245.83 to produce, while the 8GB flavor demands just $264.85. Of course, this isn't the first time a hot-selling product has been broken down by the numbers to prove just how ripped off we're all getting (if these numbers are to be trusted, that is) -- but hey, unless you've got the means to buy capacitors and LCD touchscreens by the boatload, you're probably stuck paying exactly what they ask. Plus if all this sudden competition gets a bit too heated, don't think Apple doesn't have any room to introduce a (highly desired) price drop.

[Fuzz @ Jan 18th 2007 11:14AM]

I was thinking about this yesterday, and came up with an off-the-top-of-my-head figure of $300.00. Guess i was close.

[tim @ Jan 18th 2007 11:15AM]

The markup on clothes is 100% of wholesale, so this isn't really surprising. Marketing and R&D has to be recouped, too. But still, nobody like the cold light of reality when it comes to consumer products and capitalism, so yeah... what a ripoff.

[Rob @ Jan 18th 2007 11:21AM]

It's not a rip off. Companies are in business to make money--that's why they research and develop new products. The beauty of capitalism: if you don't think it's worth the asking price, don't buy it. Simple.

[js @ Jan 18th 2007 12:52PM]

Not true. It's an iPod. People have to buy it to be cool.

[Patrick D @ Jan 18th 2007 11:22AM]

this post is really unfair. those numbers given by analysts are considered the "Bill of Materials" cost. literally, what does apple pay for the hardware per unit, in a bulk purchase.

so that extra cost in there has to provide apple with funds to pay their engineers, cover all overhead and expenses, make SOME money, and pay cingular too for their involvement in this project. please be fair...

[teodoro @ Jan 18th 2007 12:24PM]

Don't forget Marketing. That alone has got to take 10% of the cost.

[TheCount @ Jan 18th 2007 1:21PM]

lol, pay Cingular? You think they're paying Cingular? If anything, Cingular is paying Apple.

[Eric Carroll @ Jan 18th 2007 1:29PM]

Exactly, and keep in mind there are things like legal fees (200 patents and people to file them aren't free), and if we are to believe that this phone really was over 2 years in the making, thats a LOT of payroll checks for a lot of people...

Is there a premium sure, but Apple isn't the first company to market itself as "luxury" or "premium" and charge accordingly. Apple's products can be expensive, but that doesn't mean they aren't "worth it" or that the prices are unfair...

[rj @ Jan 18th 2007 1:52PM]

sorry... but i see "...only costs Apple $245.83 to produce." key word here being -> produce. which to me also means that all labour and manufacturing overhead is included. then again, this is a tech blog... so the wording could really mean anything.

ps.. taking it a step further... labour and manufacturing overhead in china is dirt cheap.

[ScOObyDoo @ Jan 18th 2007 11:24AM]

Plus, I'm willing to bet Apple told Cingular that they want a decent kickback for each subscriber they bring in. Wouldn't surprise me if that is at least $250.

[Richard @ Jan 18th 2007 11:25AM]

Hey! Kids!

This is America! If you don't like the price, don't buy it. If the market says the price is too high they will drop it or shoot it.

Wasn't that wonderful, feature-laden RAZR-phone something like $400 at launch?

Not like this is some lifesaving anti-cancer biomolecule.

[Sam H @ Jan 20th 2007 12:22PM]

Actually, I believe the RAZR was around $700 at launch, but point still made.

[Whynot @ Jan 18th 2007 11:26AM]

Well, Apple is a business after all, so it's not surprising to know they make money by selling their products.

However, the 50% percent we're talking about here are gross margin (retail price minus components and assembly costs) and not profit margin, meaning you have to add salaries, R&D costs, transportation costs, etc... to find the real profit they make from selling the iPhone.
Of course, with time, some costs like R&D are "reimbursed", therefore allowing a higher profit or price cuts.

[MacBookOwner @ Jan 18th 2007 11:28AM]

Explain exactly "just how ripped off we're all getting" again? You bought one already? Someone is forcing you to buy one? Someone is making a profit? Stop the presses.

[aboriginal @ Jan 18th 2007 11:29AM]

How many millions spent in R&D and how much more in support and advertising? Profit margin pays for much more than the product itself.

[nate embrey @ Jan 18th 2007 11:30AM]

sorry guys - no one cares.

those of us buying the iphone aren't doing so because we know apple isn't making much from it. lol.

"iphone doesn't do this"..."iphone only costs this"..."iphone needs to have this"

booo. apple has created a product people are going to buy. if you don't have the money...that's fine. don't buy it. lol.

complex, i know.

[jdkchem @ Jan 18th 2007 11:31AM]

A 50% profit margin is huge. I have been told that the "average" profit margin is 6%. I don't by Apple products for many reasons, price gouging is just one reason. Apple has always been over-priced and over-hyped.

[Jonathan Allen @ Jan 18th 2007 1:55PM]

You have been told that the average markup is 6%? Who told you that? Sam Walton?

Seriously, with 30 months of R&D, you know they have to make that up somehow. Also, Apple often releases a premium product then later introduces their new premium and the old high end becomes a lower end. So expect the price to drop in 6 months or a year after release.

[James P @ Jan 18th 2007 11:33AM]

Absolutely agree with Patrick D. Just because the total price is a 50% markup over materials doesn't mean they're making that much profit. Packing materials, shipping costs, R&D, patents... how about legal fees for protecting this baby? There's more to manufacturing costs than parts.

[Nicolas @ Jan 18th 2007 11:34AM]

As stated in the article, this is above but not excessively so from Apple's iPod and Mac *gross* margins. Their actual net amrgin will be less, after shipping, r&d, etc. are taken into account.

One thing: This ratio is based on the advertised price, with contract, not the as-of-yet unknown no contract price (advertised at around 1500$ in Germany, but that might be a wild guess...). The telco is probably giving Apple more than this as a way to promote their plans so their actual gross margin may be even more.

[Andrew @ Jan 18th 2007 11:34AM]

I am by no means an Apple fanboy, but to say that you are getting 'ripped off' by Apple because you don't agree with the amount of money they are making on a device is moronic. At least Apple spends money on R&D and releases good products, unlike the hordes of crap I saw at CES last week, that are all chasing a few points here and there to stay in business.

[ScOObyDoo @ Jan 18th 2007 11:34AM]

Packing materials? When was the last time you saw an iPod? There are no packing materials, there isn't even a CD included anymore.

[Razor @ Jan 18th 2007 12:03PM]

So they just handed you an iPod over the counter with no protective covering or anything and sold it to you as "new". I think you got hosed!

[Rand @ Jan 18th 2007 11:37AM]

It also doesn't cover warranty costs which would cover not only phones that broke within the warranty period, but also remorse returns. Remorse returns are the ones where people decide they don't like the phone and return it. The numbers on those type of returns are huge. 40+%.

[John Papola @ Jan 18th 2007 11:39AM]

Good for Nintendo for calling a spade a spade. This repulsive class action suit is the perfect example of yet another trial law firm trying to freeze innovation and destroy the future while lining their pockets with 40% of the take and giving a pittance to the "victims". Anyone that signs on for this suit or any like it is an enemy of society. Grow up people. You aren't owed anything by anyone and being stupid does not make you a "victim". Grrrr... where's John Stossel when you need him?

[Parker @ Jan 18th 2007 3:11PM]

Reply to the wrong article? This is about Apple.

[joe @ Jan 18th 2007 11:39AM]

It is a ripoff. The markup plus the Cingular only crap means no iphone in my future...

[Apple guy @ Jan 18th 2007 12:29PM]

An expensive Mercedes, Lamborghini or Ferrari is a speciality product that everyone wants and only some can afford. Does anyone call their products rip offs just because someone wants one and can't get one???
Nope, same deal with the iPhone if you don't like the profit, the price or the cingular deal then don't buy it.... Its that simple. If you want one but can't afford it, then save up... It comes out in June so the average person will have time to save the money. If you are on a different network and really want the iPhone then switch networks.. That's it. I'm sure over time we will see lower prices and more networks. But no one has the right to complain over a luxury item...

P.S. I am going to buy an iPhone and I am going to enjoy it greatly... :-)

[Jon G @ Jan 18th 2007 11:41AM]

You're looking at cost of goods only.
Listen: Cost of goods on Vista is actually about $5.00 and they charge Hundreds for it - Why? Becuase there are soft costs - like development that have to be recaptured
Figure in R&D, legal, coding, etc.. and it will take awhile for this to pay off.
Settle down.
Profit drives the engines of the economy.
Nobody would develop a product that they didn't think they could profit from.

[badger @ Jan 18th 2007 11:41AM]

This report seems dubious because it doesn't account for the amount that Cingular is kicking back to Apple to defray the cost of the phone. I haven't heard how much Cingular is paying Apple, but it is probably more that zero dollars.

So, either Apple, is making a much a larger profit than %50 or it's a bullshit report.

[jdkchem @ Jan 18th 2007 5:56PM]

Funny how anyone who deems a 50% profit margin excessive gets the "low" ranking.

[rich @ Jan 18th 2007 11:41AM]

If this is true. One interesting aspect is that fact that Apple does not need a big subsidy from Cingular to make the phone affordable. It may be wishful thinking, but may be Cingular won't be giving Apple a subsidy at all. In exchange, perhaps the iPhone will have a reasonably priced voice and data plan. It always struck me as odd that the phone companies could afford to pay $200-$300 for a new subscriber, that's roughly $10/month on a two year contract.

You always hear how the other phone makers have to compromise their phones because of the carriers, maybe Apple's deal was don't give us the subsidy and let us make the phone we want. At these prices Cingular will be making money by selling the phones at retail.

[Christian Martin @ Jan 18th 2007 11:43AM]

Maybe they could squeeze a Blu-Ray drive in and break even?

[John Papola @ Jan 18th 2007 11:47AM]

Old post. Stupid autocomplete.

Apple doesn't overcharge. Macs configured comparable to Dells are comparably priced or cheaper.

OSX fully enabled and a fraction of the cost of Vista Ultimate.

iPods are among the cheapest in price/GB in the industry (hence the zune's inability to undercut them).

STOP THE FUD.

[TT @ Jan 18th 2007 11:49AM]

I feel like engadget is trying to make up for their iPhone hype coverage by posting some apparent bad news with a negative slant. Please, just tells it how it is with humour, not negativity, or you'll end up sounding like a crazy commentor.

[DM @ Jan 18th 2007 11:51AM]

There is only one simple solution people. Don't buy this phone.

[sonyc @ Jan 18th 2007 11:53AM]

A some readers mentionned it : this not fair.

Engineering hard and soft, publicity, shipping aren't include.

50% in the industry is very very common ... But anything is good to withdraw Apple for years ... even unconsciously ...

[moma @ Jan 18th 2007 11:53AM]

So how about all the development work that goes into designing, building etc something like this? Doesn't that count for anything?

[ViktorVaughan @ Jan 18th 2007 11:57AM]

Another stupid " only costs $X of raw materials to produce, what a ripoff!" that completely ignores many crucial issues of selling complex consumer electronics in the cellphone market.

[Chris @ Jan 18th 2007 11:59AM]

what about the cost of writting the software?, and as was already mention, the R&D?

a better number would be how much apple spent bringing this to market vs what the profits will be after the first 10 million (the 1% market target Jobs has) are sold. I bet it'll take at least a couple years to recoup.

[RedWolves @ Jan 18th 2007 12:00PM]

yeah but the iPhone hardware alone wouldn't of dazzled people...it was the software that did it.

[guilt+1 @ Jan 18th 2007 12:02PM]

Since they admit in the report that they don't even have a device to strip down in order to calculate the costs properly. This is ALL GUESSWORK.

Why bother even writing it. Why bother then perpetuating it by reposting the info here. It's clearly not based in fact and has no more validity than any other claims until someone can actually buy one and rip it to bits.

Give the iPhone a rest. Yes Yes, it's all very exciting but until it's on the shelves you're wasting everyones time by posting about it.

[David Gevert @ Jan 18th 2007 12:04PM]

"Apple doesn't overcharge. Macs configured comparable to Dells are comparably priced or cheaper."

Perhaps so but Dell overcharges too. I can build a system (*another* disadvantage of Macs) that will run circles around any similarly priced Mac with ease.

"OSX fully enabled and a fraction of the cost of Vista Ultimate."

I was unaware that you could just go out and buy a copy of OSX.

"iPods are among the cheapest in price/GB in the industry (hence the zune's inability to undercut them)."

Bullshit. 4 GB Nano = $190 on Newegg.

Out of 19 4 GB players on Newegg, *2* were more expensive than that.

60 GB Video iPod = $280 on Newegg.

60 GB Creative Zen Vision M = $265. And the Vision M is a vastly superior player to the iPod *shit,* and not locked into Apple's shitty iTunes software to boot.

"STOP THE FUD."

Stop the mindless Apple worship first, why don't you?

[Mike @ Jan 18th 2007 1:09PM]

"I was unaware that you could just go out and buy a copy of OSX"

You seem to be surprised by that fact...

[Andy @ Jan 24th 2007 12:03PM]

"Perhaps so but Dell overcharges too."

[tgernon @ Jan 18th 2007 12:05PM]

i personally do not care about the cost... we all just have to realize that no matter what something costs... if some one wants it they will pay it... i just sold my wii for 400...and that cost me 250, and it cost nintendo even less...

[Javaflash @ Jan 18th 2007 12:08PM]

If we calculate the profit margin on Windows XP/Vista in the very same way as this article did with iPhone, we would have revolutions against that company long long ... long time ago.

Companies are around to make money. If they're not, they will seize to exist. We are not socialists, and they are not governments. We don't make demands on what they own/sell/produce. We choose.

[bbydon @ Jan 18th 2007 12:12PM]

THIS IS NEWS?
ENGADGET WHAT HAPPENED?
AFTER CES YOU SEEM OBSESSED.
GET OVER IT.......

[Alex @ Jan 18th 2007 12:16PM]

Wow, when people buy video games for $50, it costs what, $3 at most? for the discs, printing, cardboard box/plastic case, and manuals?

oh no! video game companies are making 94% profit margins! everyone should stop buying video games!!!

Companies can't just instantly produce designs without R&D, market research, or even constructing factories/molds for that matter.

worthless article...

[trev @ Jan 18th 2007 12:18PM]

what do you charge for the web ads on your site??? - that costs you practically nothing, but it's still worth it for advertizers.

If people pay the price, it's a fair price. it has nothing to do with how much it costs the company to produce. it's good business.

I have no problem with a 50% profit margin.

it's business