How Apple Captures A Majority of the Total Profits in the Smartphone Industry

iPhone 4S Components Cost $188, Same as iPhone 4

There’s a reason why Apple has more than 50% of the total profits of the smartphone industry, despite having a much smaller market share. It’s this:

After the Apple iPhone 4 was released last year, iSuppli reported that the total cost of its components was $188. Today, iSuppli revealed the cost of the components used in the iPhone 4S which was launched last week, and it’s the same as that of the iPhone 4 – $188.

Despite having much more powerful hardware, the total cost of components for the iPhone 4S is the same as that of the iPhone 4. This is not only a testament to the generalized form of Moore’s law, but also to the operational genius that is Tim Cook.

iPhone 4S Launch by Tim Cook

The iPhone 4S, like the iPhone 4 at launch, will have minimum gross hardware margins of more than 65%, with the total cost of components and manufacturing coming to $196 for the 16 GB iPhone 4S.

Here’s what its gross profit margins will be on each of these devices:

16 GB iPhone 4S: 67%
32 GB iPhone 4S: 69%
64 GB iPhone 4S: 68%

Apple makes more than $400 on each iPhone 4S unit it sells.

Such margins are unheard of in any industry as competitive as the smartphone industry. Apple is playing in a highly competitive market, yet it’s making profits as if it were a monopoly.

Choosing the same design and some of the same components as the iPhone 4 for the iPhone 4S has enabled Apple to reduce its overall cost of manufacturing the device.

Kudos to Tim Cook and Apple!

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