After the recent announcement from Steve about the next generation 3G iPhone selling price of only half of what being sold when he first launched the EDGE version iPhone since last year, most of us wonder how Apple Inc. can make a good margin out of them. Although the Apple’s 3G iPhone Hardware BOM cost has been significantly reduced due to re-engineering and strong bargain power, but there is another huge factor that contributes to its profit margins – huge subsidy from AT&T. According to Oppenheimer analyst, Yair Reiner, AT&T plans to subsidy Apple Inc. with $325 for each 3G iPhone that they push to market. Obviously, this is lots more higher than typical smartphones manufacturers that used to enjoy only up to $200 subsidy from US service providers.
Again this can be tied back to Apple Inc unique marketing strategy as well as its strong bargain power. By lowering down the retail price to a level even lower than most of the middle end smart phone in the market, it stands a great advantages in wiping off majority of market shares with price slashing. On the other hand, it managed to negotiate with AT&T for higher subsidy so that at the end it could still earn more especially when the sales volume increase. On top of basic subsidy, AT&T will pay Apple Inc. additional $100 for new contract signup in Apple stores, that makes up a total of $425 net profit per unit of iPhone sold.
Reiner forecasted the new iPhone volume could ramp up to 15.2 million units in 2008 and 33.2 million units in subsequent year.