How is Apple Making Less Money?

Discussion in 'iPhone' started by Greencardman, Jun 17, 2008.

  1. Greencardman macrumors 6502

    Apr 24, 2003
    Milwaukee, WI
    Ok, I've seen this on quite a few reputable blogs, including comments from stock analysts. Basically, the sentiment is that Apple will be making less money on each 3G iPhone because of the lower price, and they will try and make it up by selling more iPhones.

    Now, call me crazy, but that math doesn't seem right. Apple sells the phone, we buy it, we pay AT&T for service. AT&T is subsidizing the price, and they pay that money to... Apple. So Apple is getting full price for each 3G iPhone sold. $399 for 8GB, $599 for each 16GB. How is that less money?

    Now, maybe some very smart people were just confused about who was subsidizing the phone, but its clear that its AT&T. I think when people hear "cheap iPhone!" they automatically assume Apple will be making less money. But it won't. Am I correct, or do I need to go back to school?
  2. gilesrulz macrumors member

    Jun 17, 2008
    They're not getting a piece of the subscription fees any more.
  3. Greencardman thread starter macrumors 6502

    Apr 24, 2003
    Milwaukee, WI
    Thats true, since the original phone was never subsidized. Possibly thats what mean people meant, but I was getting the distinct impression many people thought Apple was only going to get paid $199 for every 8GB iPhone sold.
  4. FarSeide macrumors 6502a


    Feb 17, 2008
    Earth Lane
    Apple is making the same amount of money for the iPhone, its the revenue sharing piece they wont be making a dime on.
  5. bmms8 macrumors 68020

    Dec 19, 2007
    if they are making less money up front, they will more than make up for it when the appstore comes out. people are also jumping on mobileme which seems to be a hit for apple. also push for their apps from the store i think will be a huge thing for them in the future. even though it's for free, some applications won't be. every penny counts when your talking about 6 million iphones.
  6. Diode macrumors 68020


    Apr 15, 2004
    Washington DC
    While I agree with the Appstore how can you call MobileMe a hit when it hasn't been released?
  7. kdarling macrumors demi-god


    Jun 9, 2007
    First university coding class = 46 years ago
    My guess is that ATT's cost is probably the same as always. Apple's share depends on whether unlocked or not.

    For the first iPhone... assuming BOM of $200

    Apple sells for $400 ($200 instant profit). Plus $200 subsidy ($8 a month) from ATT _if_ the phone is registered. (Over 25% are not.)

    Therefore Apple makes $400 if on a partner carrier, but just $200 if unlocked.

    For the 3G iPhone... assuming BOM of $100

    Apple sells for $200 ($100 instant profit). Plus $200 subsidy from ATT. (Or just outright to foreign carriers for $400.)

    Therefore Apple makes $300 always.

    These are of course rough figures. Feel free to come up with your own. But it seems like Apple will take a hit upfront in order to gain more locked phones. And it has the app store to make millions.
  8. sassenach74 macrumors 65816


    May 3, 2008
    Hampshire, England
    Total contradiction there, neither are released, and add to that, the iPhone 3G isn't released either, yet alot of people know they are going to buy it. You're splitting hairs with the term 'hit', he is saying people like what they saw with it, nothing more nothing less.
  9. SFStateStudent macrumors 604


    Aug 28, 2007
    San Francisco California, USA
    Yup, this confirms^^^

    "With the iPhone 3G, however, Apple has transitioned its partnership model to a more traditional format: wireless companies pay an up-front subsidy to Apple, allowing iPhones to be sold at a discounted rate, and eschew the monthly stipend, instead keeping the entire monthly subscriber yield to themselves."
  10. bmms8 macrumors 68020

    Dec 19, 2007
    Sorry, i know that mobileme, appstore, and even the iphone is not out yet haha. but the above poster clarified what i tried to say. also, if apple has a BOM of $200 on a $400 phone, they do not make $200 profit. phones do not sell themselves. there are plenty more expenses that apple has. the list can go on forever. while they have probably have a margin on their iphones, i think they are counting on mobileme, and more importantly, the appstore. i read that the average cost of an application that is not free is $2.77. 30% of that is $.831. if just every iphone owner buys 1 application over a lifetime based on JUST 6 million iPhones sold, it comes out to nearly $5,000,000. i do think that they will sell much more than 6 million applications. plus, there is just a initial cost with the applications. everything is downloaded over the air, there is no brick and mortar shops, no employees involved, and many other savings.

    not all companies make a huge profit on their main product, i think Microsoft lost well over $100 on each 360, or it might have been Sony with PS3
  11. drchipinski macrumors 6502


    Jul 12, 2007
    If the above statements are true, why would Apple stick to just one carrier?
  12. bmms8 macrumors 68020

    Dec 19, 2007
    they have one carrier in each country. apple will sell phones regardless, enough people will switch to ATT to get the iphone. i don't see that with the instinct and sprint. Plus, who knows the details between ATT and apple. there can always be a amount ATT can pay apple based on how many iphones they sell. i mean it seems like every customer has to extend/start their contract two years.
  13. Greencardman thread starter macrumors 6502

    Apr 24, 2003
    Milwaukee, WI
    I'm not sure they need to stick with one carrier anymore, but I'm sure since it was part of the original agreement, AT&T would rather that it didn't change. Apple can't dictate everything :)

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