Are Apple’s iPhone Profits Squeezing?
It is no secret that the iPhone is one of Apple’s (NASDAQ:AAPL) most profitable products, but a new analysis by Asymco finds the smartphone’s high gross margins have to face several challenges. The iPhone is the only Apple product to consistently yield margins in excess of 50 percent, with the iPad, the Mac, and the iPod typically only offering margins of between 25 percent and 35 percent.
However, the phone also comes with big expenses. “The iPhone is a profit monster,” Asymco’s Horace Dediu wrote, “but when it launches there are many costs associated with it: components tend to be more expensive, there are more warranty returns, there are higher shipping costs as units are shipped in smaller lots to more points of sale.”
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It is for this reason that even though the iPhone has helped put Apple’s “gross margins and its operating margins … on a consistent upward slope since early 2006,” each new version of the device causes a dip. There is no reason to worry for the company yet as with each dip comes another surge and “the volumes of the new generation product begin to dwarf the previous,” the analyst added.
“There is an asymptotic limit to margins as they cannot grow higher than whatever the iPhone yields, but that’s not yet in sight,” Dediu wrote. “The upper bound is probably in the 50 percent range.”
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