Court filing: iPhone is a gross margins powerhouse

Apple doesn’t usually disclose gross margins for individual products, but a recently unsealed statement from an Apple expert witness, filed as part of the company’s patent battle against Samsung, shows just what a profits powerhouse the iPhone and iPad are.

The filing, reported by Reuters, shows Apple earned gross margins of 49 to 58 percent on U.S. iPhone sales between April 2010 and the end of March 2012. This translated into revenues of more than $33 billion.

During the same period, the iPad had gross margins of 23 to 32 percent, generating revenues of more than $13 billion.

Apple’s profit margins across all products and services were listed as 42.8 percent in the company’s financial statement for the third quarter for 2012. This can be compared to the single-digit profit margin that most PC OEMs are rumored to be bringing it.

There are a few reasons why the gross margins on the iPhone are better than for the iPad.

The first reason is that during that two-year period Apple has had four different iPhones on sale. There was the iPhone 4S, which debuted October 2011, the iPhone 4, which was released June 2010, the iPhone 3GS, which was released June 2009, and the iPhone 3G, which was released June 2008 and withdrawn from market on June 2010.

Currently Apple continues to sell three of these models: the iPhone 4S, the iPhone 4 and the iPhone 3GS.

Older handsets typically have a higher profit margins because production and component costs will have fallen since they were first released. This falling cost in the bill of materials results in higher margins.

It wasn’t until the launch of the iPad 3 that Apple decided to keep the older model — the iPad 2 — on sale at a lower price point.

Another reason for the higher gross margins is that the iPhone is heavily subsidized by the carriers, to the tune of about $400; money that they claw back from the customer in the form of monthly payments.

When Apple released the iPad it decided to not take the subsidy route and instead choose to sell the device outright to consumers and allow them to pick and choose a carrier and be tied to nothing more than a monthly rolling data contract. The lack of a carrier subsidy on the iPad means that Apple has had to be more careful when it came to pricing, and as a result accept a lower margin.

Finally, Apple sells a lot more iPhones than it does iPads, and the larger sales volume means that the Cupertino-based giant has a huge grip on the supply chain and can squeeze costs to a minimum.  

It’s clear that Apple has fine-tuned the component sourcing, manufacture, distribution and sales of the iPhone and iPad, and it is reaping the rewards of this in the form of incredibly high margins.