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How does apple profit?

Italianblend

Italianblend

macrumors 68000
Original poster
Mar 21, 2011
1,794
247
Fatima
This is going to sounds like a stupid question, but I am not a financial wizard.

If the regular retail price of these smartphones are 600+ dollars, and you're getting it for the $200 price with the 2 year contract, I'm just curious as to who profits.

Here's what I know:
The carriers want to lock you into that 2 year contract. I get that. For most of us, 2 years on an iphone is at least $2400. So, there's the profit for them...

So, I guess what I'm asking is - do the cell carriers (sprint, verizon, att) pay 600+ to apple for each unit and eat that $400 difference (because the contract is more important/lucrative to them)?

If this is the case, then I can see apple making a profit, given that it doesn't actually cost $600 to produce each unit.

Does anyone know exactly how this works?
 
Apple sells the phones to the carriers for their price, lets say $600 for a 16GB and then AT&T, VZW and Sprint can sell it for $199. The carriers take the inital hit but make up for it in the monthly contract.

Edit - Something that helps to paint my picture, look at the wifi iPad. There isn't $300 more in hardware in those vs an iPhone but since Apple sells them directly they have to get all of their money from the consumer.
 
Italianblend said:
This is going to sounds like a stupid question, but I am not a financial wizard.

If the regular retail price of these smartphones are 600+ dollars, and you're getting it for the $200 price with the 2 year contract, I'm just curious as to who profits.

Here's what I know:
The carriers want to lock you into that 2 year contract. I get that. For most of us, 2 years on an iphone is at least $2400. So, there's the profit for them...

So, I guess what I'm asking is - do the cell carriers (sprint, verizon, att) pay 600+ to apple for each unit and eat that $400 difference (because the contract is more important/lucrative to them)?

If this is the case, then I can see apple making a profit, given that it doesn't actually cost $600 to produce each unit.

Does anyone know exactly how this works?
Click to expand...

No one knows what cell carriers purchase them for. It's special pricing worked out between the carrier & Apple. But it's definitely cheaper than the contract-free pricing that Apple sells for unlocked iPhones.
 
charliecc said:
Yes it does and you don't need to be a financial wizard, it's common sense.
Click to expand...

He was only asking a question, it didn't do anyone any harm.
If you worked with the general public you would know there are a lot of people way dumber than the OP.

Don't listen to this guy OP :)

Rest assured Apple makes a mint off each and every iPhone no matter who they sell too. Cost price is probably about $200 to $250, they sell them for double that. Go figure !
 
charliecc said:
Yes it does and you don't need to be a financial wizard, it's common sense.
Click to expand...

kmanmx said:
He was only asking a question, it didn't do anyone any harm.

If you worked with the general public you would know there are a lot of people way dumber than the OP.

Don't listen to this guy OP :)
Click to expand...

!) Charliecc did not say he was doing any harm. He just stated it was common sense.

2) Having a large percent of people being dumber than the OP isn't justification for lack of knowledge. This kind of thinking is EXACTLY WHY people are like that. They seek justification for their shortcomings by looking at others. Don't be like that.

3) Common knowledge isn't common; IMO the concept should be taken out of our vocabulary, as people... don't fully grasp the requirements or rather, circumstances in which one would use it.
 
There was a report a few days back about the 4s build costing ~$205. If Apple is selling them to carriers for $600, that is how they make their money. Carriers make it up in contracts and exorbitant fees.
 
Young Spade said:
!) Charliecc did not say he was doing any harm. He just stated it was common sense.

2) Having a large percent of people being dumber than the OP isn't justification for lack of knowledge. This kind of thinking is EXACTLY WHY people are like that. They seek justification for their shortcomings by looking at others. Don't be like that.

3) Common knowledge isn't common; IMO the concept should be taken out of our vocabulary, as people... don't fully grasp the requirements or rather, circumstances in which one would use it.
Click to expand...

Are you willing bet the OP knows nothing that you don't ? Because if he does, you my friend, are in the exact same category of apparent lack of common sense.

You and anyone else flaming the OP are just embarrassing yourselves. You clearly look down on people who may not be as intelligent as yourselves. Why ?. But that is beyond the point, he has made one post so I do not understand how you've made such quick assumptions.
 
Apple sells it to the carrier for $649 or $599 or whatever special rate they work out.

The carrier sells to you for $199.

That means the carrier is out $400. The way they make it up is by charging a lot on your monthly bill. Over 2 years it makes up for the phone.

This is also why typically carriers don't let you upgrade until you are almost at the end of your contract.

It also explains why some fanboys are being ridiculous expecting that a company should let them get the discounted price every time a new iPhone comes out, before the carrier even had a chance to make its $400 back on the first one.

Technically, if you bring your own phone, carriers should be giving you a discount since they didn't have to subsidize a headset. As far as I know, only T-Mobile has ever done this though (on their pre-paid plans which they are now phasing out, they charge $10 less per month than on their contract plans that include a discounted phone).

Since most people qualify for a new upgrade in 18 months, its safe to assume the carriers actually make their money back around then. So that works out to about $22 per month for the first 18 months going toward paying the carrier back for the phone.
 
Patriot24 said:
There was a report a few days back about the 4s build costing ~$205. If Apple is selling them to carriers for $600, that is how they make their money. Carriers make it up in contracts and exorbitant fees.
Click to expand...

The build cost does not include things like design, R&D, admin, testing and software costs. This is not to say that Apple is not making a mint on each phone but not quite as much as the build cost would suggest.
 
Gregintosh said:
Technically, if you bring your own phone, carriers should be giving you a discount since they didn't have to subsidize a headset. As far as I know, only T-Mobile has ever done this though (on their pre-paid plans which they are now phasing out, they charge $10 less per month than on their contract plans that include a discounted phone).

Since most people qualify for a new upgrade in 18 months, its safe to assume the carriers actually make their money back around then. So that works out to about $22 per month for the first 18 months going toward paying the carrier back for the phone.
Click to expand...

Yeah, this is why I've never understood people who rave about being 'contract free'. Um, you're basically paying the cell company around $20 per month extra for a product you're not actually getting. Yeah, you can leave at any time, but you're paying a TON for that right.
 
The average selling price for iPhones is about $625 to Apple according to their financials. We have no idea of prices for different models though.
 
HitchHykr said:
The build cost does not include things like design, R&D, admin, testing and software costs. This is not to say that Apple is not making a mint on each phone but not quite as much as the build cost would suggest.
Click to expand...

Good point. I was just looking at it from a manufacturing/sales perspective.

In this case, their R&D and other costs are probably way down since they used the 4 case that they already had. My guess is that the "s" releases are probably the most profitable from a margin standpoint since they are re-using designs, etc.
 
sweetbrat said:
Wow, was that really necessary? There's nothing wrong with asking a question. Some people here are so rude.
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rwilliams said:
It's amazing how rude and classless people become behind a keyboard. That wasn't necessary at all.
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Seriously? Are you two 12? Did that comment really bother you that much? Grow up. Maybe you need some time in the real world to toughen you up a little bit.
 
I'm also sure that Apple has figured out how many apps each user needs to buy too since they collect 30% off each app. They don't make much off of music but in order for someone to use iTunes they need an iOS device. It has to start somewhere.
 
fjrabon said:
Yeah, this is why I've never understood people who rave about being 'contract free'. Um, you're basically paying the cell company around $20 per month extra for a product you're not actually getting. Yeah, you can leave at any time, but you're paying a TON for that right.
Click to expand...

Outside the USA you can get cheap rolling monthly contracts that don't include subsidy payments, which means it can work out a lot cheaper in the long run if you buy the handset at full price.
 
HitchHykr said:
The build cost does not include things like design, R&D, admin, testing and software costs. This is not to say that Apple is not making a mint on each phone but not quite as much as the build cost would suggest.
Click to expand...

Yeah, thought the thing with those is that you can't put them int terms of a per unit cost, since they are fixed costs.

Also, you run into the problem of R&D costs are extremely difficult to pin down anyway. For instance, when developing iOS5, some of those R&D costs should go to iPad, some to iPhone, and even some should go to Mac/Lion (since they recycled some R&D for it).

This is why these fixed costs aren't usually factored in on the per unit profit. Per unit profit is usually just materials cost + labor cost + shipping costs. Overall profit can really only accurately be done for the company as a whole, and even then it's not THAT accurate.

----------
OllyW said:
Outside the USA you can get cheap rolling monthly contracts that don't include subsidy payments which means it can work out a lot cheaper in the long run if you buy the handset at full price.
Click to expand...

true, I was mostly talking about all the US people.
 
It costs apple about $200 bucks to make one. They sell it to the carrier for around 5-600 bucks. Profit for them is around 400 each unit.

The carrier then sells you the phone for 200 which requires you to lock into a 2 year contract.
 
oshia86 said:
Seriously? Are you two 12? Did that comment really bother you that much? Grow up. Maybe you need some time in the real world to toughen you up a little bit.
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I'm sorry. I forgot that acting like an ass online to anonymous people is now the norm rather than the exception. I remember when you could ask a question and get helpful responses without insulting each other.
 
rwilliams said:
I'm sorry. I forgot that acting like an ass online to anonymous people is now the norm rather than the exception. I remember when you could ask a question and get helpful responses without insulting each other.
Click to expand...

It wasn't an insult, Mr. Sensitive. Calm down.
 
oshia86 said:
Seriously? Are you two 12? Did that comment really bother you that much? Grow up. Maybe you need some time in the real world to toughen you up a little bit.
Click to expand...

you seemed just as bothered... You remind me of a guy screaming at someone to demonstrate how little you care.
 
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