Apple Inc.’s shares jumped in high-volume trading Tuesday after researchers said the company will reap a gross profit margin in excess of 55 percent on its 8 gigabyte iPhones.
Apple shares added $5.91, or 4.9 percent, to $127.17 in an abbreviated trading session that ended at 1 p.m. due to the upcoming July Fourth holiday. During the past year, the stock has traded between $50.16 and $127.61, running up in recent months in anticipation of the hybrid cell phone, media player and wireless Internet gadget’s June 29 release.
On Tuesday, the research company iSuppli reported that a tear-down analysis of the iPhone showed its bill of materials and manufacturing costs totaled $265.83. That means Apple would generate a margin of more than 55 percent for every 8 gigabyte iPhone it sold for $599.
Eric Pratt, iSuppli’s senior director of tear-down, said iSuppli is still fine-tuning its report and it now thinks the product’s margin is more than 50 percent, when accounting for factors like royalties and software costs. He wasn’t surprised by the margin, he said, because the company’s earlier research-based modeling called for a basic iPhone cost of $264.85.
Apple does not disclose its margins for specific products but iSuppli’s estimate for the iPhone – which doesn’t include marketing or research and development costs – falls in the ballpark of its iPod cousins that were similarly analyzed by the market research firm.
The iPhone’s margin is much higher than some smart phones, like the Motorola Q, Pratt said, but he expects similar margins from the new crop of smart phones, which include Nokia Corp.’s N95 and HTC Corp.’s HTC Touch.
“Apple has kind of opened up a whole new realm here in opportunities in handsets,” he said.
Pacific Crest Securities analyst Andy Hargreaves thinks investors bought the stock Tuesday in part because of iSuppli’s analysis, though he thinks the proposed margin is a bit high.
It’s impossible to tell exactly how many iPhones Apple sold during the product’s first few days on store shelves – Hargreaves esti-mates about 300,000, though other estimates range from 500,000 to 750,000, he said – and how accurate iSuppli’s analysis is, but he agreed the combination could help Apple.
“If you combine good unit sales with better-than-expected margins, that’s a very good benefit to cash flow,” the analyst said.
Hargreaves also thinks shareholders are shrugging off earlier concerns that there would be a sell-the-news event when the iPhone launched. The product was released with much fanfare Friday evening, but Apple’s shares barely budged when trading resumed Monday.
Some fairly large investors sold some of their position in Apple before the iPhone’s launch, fearing it would result in a sell-off of Apple’s stock, he said, but since that didn’t happen some of these investors might buy more shares.
“I think people are buying back into the story and the potential of the iPhone, especially given the margin,” he said.