Apple might have smashed its record for preorders with the iPhone 6, but according to a new report from Credit Suisse analysts, profit margins are actually down for the device.
The reason for this is that Apple’s quite literally giving users more for their money: an all-around bigger iPhone which still costs just $649 for its base model.
Production for Apple, however, is considerably more expensive — with the biggest costs being the larger display, improved camera, bluetooth, Wi-Fi and GPS chips.
According to Credit Suisse, this all adds up to $350.60 per iPhone 6 for Apple to produce. Apple typically receives $599 on the $649 retail price, which leaves it $248.40 (or 41.5 percent margins) in gross profit.
By comparison, the last generation iPhone 5s device resulted in Apple taking $274.30 in gross profit, representing a 45.8 percent margin. The two-year-old iPhone 5 gave better margins still: earning Apple $293.70 per unit, or 49 percent.
But never fear: things are far from looking bad for Tim Cook and co. The “phablet” iPhone 6 Plus is more expensive for consumers to buy than the 4.7-inch iPhone 6, but not especially more for Apple to produce — leaving the company with the same margin as the iPhone 5s, and its highest gross profit per unit since the iPhone 4s in 2011.
Oh yes, and let’s not forget that Credit Suisse also forecasts the highest sales for iPhones in four years in 2015: something that gives Apple an impressive 14 percent year-over-year growth in the product category.
Well played, Apple!
Source: Quartz
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
7 responses to “iPhone 6 preorders may be up, but profit margins are down”
Whenever Apple comes out with a substantially revamped model, margins typically fall. Then they recover as Apple and the component suppliers progress along the learning curve and costs fall.
yup, I don’t think anyone who watches Apple market trends would be surprised by this..
That said: I think Apple will offset that this time though by the 16/64/128GB storage differences though.. it was a smart move.. many will opt for 64 because it gives 4 times the space over 16gb..
Not the most popular move from a consumer’s point of view, but from a business point of view, it should drive more people to scale up the the next model. and THAT should offset at least some of the margin loss.. They also forget the iPhone 6 Plus.. which is an additional $100 premium on top of the storage bump..
Because of the 6 Plus and 4x storage bump upgrades, I don’t think that Apple will see the margin drop nearly as much as they normally do in a model revamp cycle.
If most people is going to buy the 64GB storage iphone 6, then imaging that vs 5GB free iCloud storage. Bet they are going to make some money out of that otherwise annoying messages all around “Your iCloud storage is almost full” you cannot back up……
I think they upgraded their iCloud storage options. The free 5GB option still remains. Although, their prices have gotten a little cheaper. http://bit.ly/1p1Vwmp
And even so, the iPhone 6 and iPhone 6 Plus should be CHEAPER!
Of course, they did double the capacities for the upgrades (giving a total of x4 from 16gb to 64gb) however, storage is cheap and that was long overdue and we’re still paying the same for the base phone. Everyone expected the iPhone 6 and/or iPhone 6 Plus to cost more because of their size, but how so? I mean, top-of-the-line Android phones have always been bigger AND cheaper.
I think the cost difference between iPhone 6 and iPhone 6 Plus should have been just $50. Sounds like too little but the only physical differences are the screen size and the optical image stabilization (the better battery life is just because of the bigger internal space). The small price difference wouldn’t have caused a “market problem” either, because it does make a huge difference to carry a 4.7″ or a 5.5″ phone so yes, it ultimately comes down to choice.
In conclusion, Apple has been used to insanely high margins anyway…
iPhone 6 and iPhone 6 Plus’s secret weapon to recover from the lost profit margins in device production? Two words: Apple Pay!
For the absurd price bumps they charge for the added memory, I’m not at all unhappy to hear this :)