Apple set for 50% margins on iPhone, says iSuppli

LONDON — The cost of manufacturing each 4GB version Apple's iPhone is put by market analyst group iSuppli at about $230, meaning each of the phones sold could generate nearly a 50 percent gross margin for Apple Inc. and partner Cingular Wireless.
This, the researchers suggest, gives Apple plenty of opportunity for future price cuts as the market takes off.

And although iSuppli has not yet done a teardown of the product, analysts Jagdish Rabello and Tina Teng suggest, based on intelligence from the suppliers' community, that some of the winners could be Micron Technology, with its imaging sensors, Marvell Technology, CSR for Bluetooth, and Samsung for the audio chip.

This is a similar line-up to what other analysts have suggested. For instance, according to a report from FBR Research, the winners are Samsung Electronics (applications/video processor), Marvell (802.11), Infineon Technologies (baseband), Broadcom Corp. (touch screen controller), and Cambridge Silicon Radio (Bluetooth).

None of the analysts to date have identified the important DSP used in the iPhone, but Rebello has suggested it is definitely not TI, the leading supplier of processors for mobile phones. He speculates it could be Renesas or Freescale.

And the source of the important touch screen also remains a mystery. iSuppli has drawn up a detailed Bill of Materials (BoM) table, which shows that this 3.5-inch 160 ppi screen is likely to be the most expensive single component in the devive, costing $33.50.

As well as the hardware costs, iSuppli suggests it will cost Apple just under $16 for non-hardware items such as royalties for the EDGE processor, the OSX operating system and other multimedia software.

The company stresses this are "preliminary" estimates, but says it is pretty confident of its predictions.

Rebello says such a strong hardware profit is par for the course for Apple, with the company having achieved margins of 45 percent and more in products including the iMac and iPod nano.

However, he adds, because Apple is facing extensive competition in the music-phone market, it may need to cut into its margins to reduce pricing in the future. "With a 50 percent gross margin, Apple is setting itself up for aggressive price declines going forward."

Apple faces a bevy of competitors in music phones, with 835 models expected to be introduced by various competitors in 2007.

iSuppli estimates that 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.

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.

In terms of features and form factors, the closest competitor to the iPhone is LG's KE850, which will ship later this year, said Teng, who tracks the wireless communications sector at iSuppli. Other phones with similar characteristics include Nokia's N800, although this is aimed more at niche markets than the broad-appeal Apple iPhone, Teng added.

And she expects mobile-phone OEMs to introduce models designed specifically to compete with the iPhone.