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Apple iPhone has 50% margins

According to a report from iSuppli, Apple's iPhone supposedly will have 50 percent gross margins. Apple's executives have declined to comment on the speculation. iSuppli pegs the BOM at $229.85 for the 4GB version of the phone and at $264.85 for the 8GB phone. Total expenses for the 4GB and 8GB models are $245.83 and $280.83, respectively. That makes the $499 4GB model more profitable with a 49.3 percent margin and the $599 8GB model profitable at 46.9 percent in the margins. While these margins are spot on for other iPod products, like the Nano and iMacs, most high-end phones have about 20 percent margins.

For Apple, such a strong hardware profit is par for the course, with the company having achieved margins of 45 percent and more in products including the iMac and iPod nano, according to iSuppli. However, because Apple is facing extensive competition in the music-phone market, the company 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,” said Jagdish Rebello, PhD, director and principal analyst with iSuppli.

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.

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, analyst, wireless communications, for iSuppli. Other phones with similar characteristics include Nokia’s N800, although this product is aimed more at niche markets than the broad-appeal Apple iPhone, Teng added.

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. iSuppli defines music-enabled phones as those supporting music file formats, and not necessarily as those tailored specifically for music playback. Thus, this number is much larger than the total available market for music-oriented handsets like the Apple iPhone.

Apple’s goal is to capture 1 percent of these unit sales, which seems attainable, according to Rebello.

For more on the iSuppli report, see this press release

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