Court filing: iPhone is a gross margins powerhouse

Court filing: iPhone is a gross margins powerhouse

Summary: While PC OEMs have to struggle with single-digit gross margins, Apple pulled in gross margins of around 50 percent on U.S. iPhone sales between April 2010 and March 2012.


Apple doesn't usually disclose gross margins for individual products, but a recently unsealed statement from an Apple expert witness, filed as part of the company's patent battle against Samsung, shows just what a profits powerhouse the iPhone and iPad are.

The filing, reported by Reuters, shows Apple earned gross margins of 49 to 58 percent on U.S. iPhone sales between April 2010 and the end of March 2012. This translated into revenues of more than $33 billion.

During the same period, the iPad had gross margins of 23 to 32 percent, generating revenues of more than $13 billion.

Apple's profit margins across all products and services were listed as 42.8 percent in the company's financial statement for the third quarter for 2012. This can be compared to the single-digit profit margin that most PC OEMs are rumored to be bringing it.

There are a few reasons why the gross margins on the iPhone are better than for the iPad.

The first reason is that during that two-year period Apple has had four different iPhones on sale. There was the iPhone 4S, which debuted October 2011, the iPhone 4, which was released June 2010, the iPhone 3GS, which was released June 2009, and the iPhone 3G, which was released June 2008 and withdrawn from market on June 2010.

Currently Apple continues to sell three of these models: the iPhone 4S, the iPhone 4 and the iPhone 3GS.

Older handsets typically have a higher profit margins because production and component costs will have fallen since they were first released. This falling cost in the bill of materials results in higher margins.

It wasn't until the launch of the iPad 3 that Apple decided to keep the older model -- the iPad 2 -- on sale at a lower price point.

Another reason for the higher gross margins is that the iPhone is heavily subsidized by the carriers, to the tune of about $400; money that they claw back from the customer in the form of monthly payments.

When Apple released the iPad it decided to not take the subsidy route and instead choose to sell the device outright to consumers and allow them to pick and choose a carrier and be tied to nothing more than a monthly rolling data contract. The lack of a carrier subsidy on the iPad means that Apple has had to be more careful when it came to pricing, and as a result accept a lower margin.

Finally, Apple sells a lot more iPhones than it does iPads, and the larger sales volume means that the Cupertino-based giant has a huge grip on the supply chain and can squeeze costs to a minimum.  

It's clear that Apple has fine-tuned the component sourcing, manufacture, distribution and sales of the iPhone and iPad, and it is reaping the rewards of this in the form of incredibly high margins.

Image credit: Apple.

Topics: iPhone, Apple, Hardware, iPad, Samsung

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  • And that's why your mobile bill costs so much

    What did a mobile contract cost pre-smartphone days? What does one without subsidies cost now? What about with subsidizes so people actually buy these overpriced devices?

    Of course, Apple won't ever comment on the destructive forces that are known as subsidies, which only became mainstream with the iPhone.

    Best thing people can do is stop supporting mobile plans that require contracts.

    You can also thank your big carriers for creating your share plans. Big increase in spending for those of you doing this (assuming you actually use data).
    • lets see...

      buy a phone for $800 and use it for 2 years getting charged $70/month for service...
      get a subsidized phone for $200, and use it for 2 years under contract for $70/month for service...
      • You're an idiot if you're going to pay the same

        I paid $269 for my phone and pay $50 a month.
        Some basic math here...
        I pay: 24 months x $50/month = $1,200 + $269 = $1,469
        You pay: 24 months x $70/month = $1,680 +$200 = $1,880

        Now let's be honest though... isn't it $70 a month for 1 gig of data under the new rules, plus $30 for a smartphone? So that's $100 a month.

        24 months x $100/month = $2,400 + $200 = $2,600

        Either way, I spend a lot less money then you.
        • So who are you with?

          You can talk all day about what you pay but it doesn't matter if we don't know who you are with. That carrier might not be available where we are or they might just plain suck in this area or overall for that matter.
    • And it more easily allows Apple to have a huge profit margin

      on it's products by demanding it from the carriers and then letting the carriers worry about exploiting the end user. Apple could care less how much it truly costs out of pocket for their iFans to use their phones.

      Though it looks like Sprint is regretting their contract with Apple to get the iPhone 4S. Again, Apple could care less as long as they get their money upfront.

      Is that the definition of greed? I think so.
      • The carrier's didn't have to make the deals

        They willingly did and contrary to your claims the Sprint CEO has recently said on several occasions that the iPhone deal was worth every penny so no regrets there.
    • Were you no around before 2007?

      Cell phones in the US have been subsidized for years, it certainly did not start with the iPhone no matter how much you want to blame Apple. It's also going to cost me the same monthly if I buy my phone outright or let them subsidize it so why in the world would I not let them do that? Sure, I wouldn't be tied to a contract but I not leaving my carrier anyway.
  • Back to its old tricks?

    50% margins? That reminds me of Apple during the DOS era. If anyone needs to be reminded why we need robust competition in the smartphone market...
    • I see that as well...

      The Market Left Apple back when people realized they got the samething or more for half the price, and if they don't learn to adapt, the samething could happen again.
    • We already HAVE robust competition in the smartphone

      market. And nobody else seems able to pull in the margins Apple does. Hmmm. Maybe something else is at work here. Like, oh, you know, an amazing supply chain infrastructure that keeps costs down.
      • Perhaps

        Perhaps you should examine the profit margin mobile providers are making on Android phones vs. IPhones. You might learn something there.
        • Learn what?

          Apple = huge profits
          Samsung = huge profits
          the rest = struggling to make a profit
      • more like lots of Apple lemmings

        Apple makes ridiculous profit because their customers are willing to pay an extra 50% for the logo. Cell-phone carriers spread the subsidies out among ALL their customers, allowing customers who don't buy iPhones to help foot the bill for the ones that do by raising the monthly plan rates. That is part of why carriers who don't have the iPhone can charge lower monthly rates - they don't have to pay for iPhones, so customers who don't want an iPhone do not have to help cover the costs for the people who get one. Compare rates and you can figure out how much EVERY customer gets charged when their carrier elects to sell iPhones
        • You are forgetting...

          ...they couldn't sell the iPhone before it got subsidized. This is the most telling part of all.
          • What are you talking about?

            It wasn't offered before it was on AT&T and it was always subsidized on AT&T.

            Please, if you have no clue don't pretend you do.
          • 150% of retail price

            You seem to be neglecting the fact that there are hundreds of people in countries that weren't included in the 1st round of iPhone5 release who have already paid hefty premiums just to get a gray/black market iPhone5.

            People are buying the phone, subsidy or no subsidy.
            Karl Ferrer
  • True, but

    Also keep in mind that gross margin is also a reflection of business model. Apple charges quite a bit for their products, which are also made at extremely low costs overseas.

    I agree with doh123. Buy a cheaper phone. Despite what people say, they last just as long, and are typically loaded with more features that Apple offers initially in their phones.
    • except..

      doh123 didn't suggest you buy cheap phone.

      What doh123 mentioned is basically why we have these subsidized phones in the first place. Carriers want your money nevertheless! (make no mistake thinking otherwise)
      It is the carriers that have established (by law) monopolies. It is still monopoly, even if you have 4-5 carriers, because nobody else can become one of them.. and thus compete with them.

      We should actually thank Apple and the other vendors that force the carriers to provide you with cheaper (subsidised) hardware. If Apple didn't lure AT& and the like with the iPhone, you would have purchased the iPhone for (like) $700 and still paid the same monthly plan!

      Other, non-Apple smartphones of the same caliber cost about the same, without subsidy... it's not Apple's fault that their manufacturers make less profit.
      • not a monopoly

        Cable companies have regional monopolies. Cell-phone carries have an oligopoly.

        Oligopoly is a common market form. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. For example, as of fourth quarter 2008, Verizon, AT&T, Sprint Nextel, and T-Mobile together control 89% of the US cellular phone market.

        T-mobile actually provides a substantially less expensive rate plan if you are not subsidizing a phone. doh123 implies that you pay the same whether you have a subsidized phone or not, and this is not always the case. Based on the rate I was offered for a contract extension without a new phone 50% of my bill is subsidizing the phone. at $35 per month for 24 months, plus $100 up front, that's $940 the carrier is collecting for the phone that is advertised as costing $400
      • No... just no

        I will not thank anyone for raising my rates.

        What did feature phones cost back in the day? I seem to remember plans for $20-30 in the US and that was with a phone that cost very little money or else was free. I understand the increased expense for data, however, I will not believe for a second that it is necessary for the shoddy coverage outside of the biggest cities.