You would think people would stop doing crazy things but they don’t. Take politics. Puhleeze. Everyone hates Congress but every election they vote the same folks back into office. Likewise, Apple makes $511 profit on every iPhone 8.
Wait. What? Is that possible? Yes. And, of course and quite inevitably, no. Yes, you’ll hear TV news and read articles that say Apple’s new iPhone 8 Plus only costs Apple $288 and since the iPhone 8 Plus– the 64GB model– is priced at $799, that means a profit of $511 on each one. Is it any wonder Apple is the most valued company on planet earth. Damn. They are printing money in Cupertino (and various and sundry locations around the world because the U.S. government doesn’t want Apple to repatriate those profits for fear of taxing Apple again).*
*hint: cashing in Apple profits is not what politicians fear.
Here’s the problem. The math is wrong. IHS Markit did a teardown of all the parts inside an iPhone 8 Plus, ran a few estimates on the cost of each component, visited a pharmacy to obtain a suppository, and then came out with a bill of materials cost of $288. That’s $288.08, to be precise. And, since iPhone 8 Plus retails at $799, the math means a profit of $510.92, to be precise.
The problem here isn’t the math. It’s what the math represents. It’s a simple guesstimate of what Apple has to pay for all the parts, and since Apple builds many tens to hundreds of millions of iPhones each year, any third party not headquartered at One Infinite Loop in Cupertino, CA is just pulling numbers from an educated home for suppositories.
It’s a guess. And that guess does not mean Apple profits to the tune of $510.92 for each iPhone 8 Plus, or a similarly constructed number for each iPhone SE, iPhone 6s and 6s Plus, iPhone 7 or 7 Plus, either of the iPhone 8 models, or even iPhone X. That’s not how the math works.
Yes, Apple’s official gross margins are the envy of competitors everywhere, including but not limited to stock brokers, stockholders, bankers, and possibly even President Trump, but such margins include far more than news reports and technology websites included in the profits of approximately $511 for each iPhone 8 Plus.
That $511 must cover other expenses long before an official gross margin is arrived at by Apple’s gold cufflink clad bean counters. Other expenses that take a bite out of the $511 include design, engineering, manufacturing, distribution, operations, marketing, and many other facets of doing business in the 21st century.
The $511 iPhone profits you may read about or see on TV news is rubbish and purveyors of such so-called news do not deserve your attention. Profit is a far more complex component than simply subtracting the bill of materials from the retail price.