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700000 iPhone sold? $200m Made?

July 05, 2007 by Mainak Biswas under Reviews187 views
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There is a lot of discussion around the internet where people are speculating that Apple has already sold 700, 000 iPhone within the 1st week of its launch. I find it very easy to digest but what is difficult to believe is that they have already made $200 – $266 million dollars in profit.

Here is what a recent post in TechCrunch said:

Based on the cost of manufacturing an iPhone (see post July 2), Apple would have made a profit of between $200million and $266 million in 3 days (not including marketing costs), on sales somewhere between $350million and $420million, significantly more than earlier estimates of Apple having a $300million weekend

Here is what one of the commenters had to say in response:

Anyone with any business sense applies all costs to determine a break-even point for a product before counting profits. Apple executives indicated that the iPhone was in development for 3 years. Apple’s R&D budget is on average 1.5B/year. Lets say a third of that budget was expended each year for the iPhone, iPod+itunes, and Mac (the three lines) – not counting Apple TV which is basically a torn down mac mini – we are talking about at least 1.5B in R&D spend over three years on the iPhone. A lot of iPhone advertising was Viral and blogs (aka FREE) but they did have a massive TV campaign which probably cost at least $25-$50M. Total Parts cost is a little more than 2 bills ($250) per iPhone, and manufacturing costs, Import costs, packaging, shipping and duties, based on my experience, should be around $75-$100 per handset.

Lets assume there is NO retail markup since the iPhone is being sold ONLY in Apple Stores (ZERO Margin paid to self!) and ATT Stores (Assume zero margin to retail partner). Since 95% of models sold are the 8GB (based on surveys), we will ignore the lower price point ($499) for this exercise.

The total GROSS profit per phone is about $275 (Revenue – Cost of Goods).

Figuring in R&D Spend plus marketing, you’re looking at a break even point of 5.6 Million (5,600,000) iPhones! We’ve only sold a Tenth of that. When Jobs estimates 10 million iPhones in 18 months, he HAS to sell that many to recoup the massive investment put forth over the last several years.

Lets start making business sense rather than writing a horribly inaccurate post that shows no sense of what “profit” means in GAAP

I think that hits the problem right on its head. Another point that I would add is , sooner or later it will make no sense for people to buy an apple device for listening to music and another apple device to make calls. There is an integration required and when that happens any other differentiation apart from glitzy design will be lost ! 

Thus it will be interesting to watch how the growth momentum for both iPhone and iPod continue.

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