[Correction] Apple Expected To Make Over $4 Billion Profit For 3G iPhone In 2009

Posted Jun 25, 2008

A new study from iSuppli Corporation estimates that Apple Inc. (NASDAQ:AAPL) will make $26 profit on every iPhone 3G that is sold.  The analysis by iSuppli is based on the initial retail price ($199) announced by Steve Jobs at this past WWDC and the manufacturing cost.  iSuppli estimated that between the content, suppliers, and costs, the 8GB version should cost about $173 to produce.

The limitation in the study is that iSuppi only accounts for the 8GB version of the 3G iPhone, it does not account for the 16GB modelâ??s profit (retailing at $299).  This is why I wrote â??Overâ? in the title.

â??The new iPhone is significantly less expensive to produce than the first-generation product, despite major improvements in the productâ??s functionality and unique usability, due to the addition of 3G communications,â? stated Dr. Jagdish Rebello, Director and Principal Analyst at iSuppli. â??The original 8Gbyte iPhone carried a cost of $226 after component price reductions, giving the new product a 23 percent hardware cost reduction due to component price declines.â?Â  Since the manufacturing cost was high on the original iPhone, so was the retail price.

Now that we know what the average manufacturing cost of producing the iPhone, we can now estimate the profit Apple will make based on Wall Street sales predictions.  Richard Gardner of Citigroup estimates that the 3G iPhone will sell roughly 23 million units in 2009.  Extrapolate the profit made on a per unit basis across 23 million units at a minimum price of $199 and you have over $598 million just on overhead savings.

Many analysts are predicting $200-$300 average profit per phone, so then it would work out to be over $4.5 billion.

Note: These estimates are only based on 8GB 3G iPhone assumptions, the profit will be higher given the 16GB models margins and the price of the phones without a registering for a new AT&T account.

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