iPhone may pay Apple over 50 percent margins: iSuppli

The Apple iPhone announced earlier this month should pay off handsomely for the company with over 50 percent gross margins for each version of the music-enabled smart phone, according to market researcher iSuppli.

Users don’t have to worry too much, however, because iSuppli believes Apple will have to reduce iPhone prices to compete against other handset makers.

The gross margin on the 4GB version of the iPhone will be nearly 51 percent, iSuppli said Thursday. The handset is expected to retail for $499, but the cost of components and assembly are less than half that price, just $229.85.

The premium version of the iPhone, the one that holds 8GB of music, photos and other data, will be even more profitable. It will cost about $264.85 to make, but sell in stores for $599, for a 53.1 percent gross margin, iSuppli said.

Over time, Apple will be able to increase its profits, or lower the price tag, as it ramps up production of the iPhone, iSuppli said. In general, once sales of a hot new product start rising, a company such as Apple will increase orders, and component suppliers will reduce their price-per-part to win those larger orders.

It’s important to note that iSuppli did not actually have an iPhone to tear apart for its cost analysis. The price and profit figures are estimates based on the features Apple has announced for the handset. “iSuppli has a high degree of confidence in its conclusions,” it said in the report.

Apple could not be reached for comment on the iSuppli report.

The price tag on the iPhone may have to come down to attract users anyway, iSuppli said, because it will be competing with 835 other music phone models expected to be launched this year.

There are already 14 music-enabled mobile phones with features similar to the Apple iPhone shipping from companies including Nokia, Motorola and Samsung Electronics, the market researcher said.

Editor’s note: This story was updated at 9:16 a.m. PT on January 19, 2007, to correct a statement that gross margins and markup are the same thing.

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