A Low Cost iPhone Would Raise Apple's Profit Margin [Chart]

A Low Cost iPhone Would Raise Apple's Profit Margin [Chart]

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Morgan Stanley analyst Katy Huberty tells clients that if Apple releases a low cost iPhone it would likely raise profit margins, reports Fortune.

The way she sees it, if Apple lowers the cost of owning an iPhone, more people will buy them. And because the profit margins on even a lower-cost iPhone are so much higher than the margins on Apple's other products, the net effect will be to lift the company's gross margin.

"Based on a 100M C2H13 unit build (vs. our current 77M) with 50% mix of a new low-priced iPhone at a $399 starting price point," he writes in classic analyst telegraphese, "we see 6% gross profit dollar and 10bps gross profit margin upside to our C2H13 model."

Huberty suggests that we might see a similar effect this quarter as Apple experiments with its pricing for the old iPhone. She notes that while discounts could lower the phone's selling price 14%, the net effect of selling more units would increase Apple's gross margin for the quarter by 0.3 percentage points.

Another interesting calculation shows that if sales of iPad minis and Macs have slowed, gross margins could actually grow by 0.9%. This has to do with a product mix more heavily weighted to the profitable iPhone.

According to the model, Apple will price the low cost iPhone at around $399. The company's gross profits are said to increase at above $349 and its gross margin would increase above $393.

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A Low Cost iPhone Would Raise Apple's Profit Margin [Chart]

A Low Cost iPhone Would Raise Apple's Profit Margin [Chart]
Scott - June 5, 2013 at 5:28am
Not sure how stupid this article really is but i would say more who cares unless you're an apple shareholder......it's no secret apple has the fattest profit margins on their products... People pay up to 3 times more than a comparable device be it computer, pad or phone. They also maintain some of the lowest production costs (made in China) as well as take advantage of the current corporate income tax laws. For a company to float a bond to pay for a common stock dividend rather than cough up retained earnings that is held outside the US, I'd say they are more business savvy than stupid.....
Peter - June 4, 2013 at 1:02am
This is a stupid article, no one garuntee apple releasing low cost iPhone but already calculating profits, crazy