Device could grow to 50 percent of revenue

Apple is turning 57.8 percent in gross profit off the iPhone, according to an estimate from Bernstein Research analyst Toni Sacconaghi. The figure puts Apple's profit well about that of other notable smartphone makers, such as HTC, Motorola and Nokia, and even RIM, which keeps about 42.6 percent of its BlackBerry sales revenue. The iPhone could account for between 45 and 50 percent of Apple's revenue in FY2011, says Sacconaghi, up from about 30 percent in FY2009.

The view conflicts with Street consensus, which suggests that Apple gross margins will drop 10 basis points in the next two years. Sacconaghi argues that this implies a $100 drop in average iPhone selling prices, a 700 basis point drop in iPhone gross margins, or significant damage to the rest of Apple's businesses.

Average iPhone selling prices are instead said to be going up, from $588 in Apple's third fiscal quarter of last year to $638 in the first quarter of 2010. Customers and carriers are meanwhile ignoring price issues, still choosing to pay the high costs of buying and selling the device. Apple is also noted to have a long history of charging high margins on its Mac products, which has only helped the company. "We would argue that the reason for such margin disparity is that Apple's products have unique software and user experiences, which differentiates them from commodity hardware offerings," says Sacconaghi.

Gross margin on the iPad, however, is believed to be about 30 to 32 percent, not 50 percent as claimed in an iSuppli evaluation. iPhone shipment estimates are also being trimmed by 1.3 million for FQ4 2010 and 5.5 million for FY2011, as Sacconaghi suggests that no Verizon iPhone will be available until the middle of next year. T-Mobile USA is more likely to get the device beforehand, he states.

by MacNN Staff