Apple’s Gross Profit on Mobile Phones is Double RIM and Motorola’s Combined
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We wanted to take a quick look at how the gross margins for Apple’s (NASDAQ:AAPL) iPhone compared to Research in Motion’s (NASDAQ:RIMM) BlackBerry and Motorola’s (NYSE:MOT) mobile phone business to see the marginal impact of each additional device sold by these companies. In other words, for each person that buys an iPhone or Blackberry, what does this contribute to the company? By looking at the individual sale, we can look past the R&D and total investment in each product for this exercise, which we acknowledge is a large component to most tech companies.
In just looking at gross margins for 2010, we estimate that Apple’s iPhone’s is around 49%, RIM’s Blackberry 35% and Motorola’s is approximately 28%. We derived these by using our estimates for the gross profit margins for the mobile phone divisions of each company.
Our result is that Apple’s iPhone generates just under $15 billion in gross profits, which is more than double our estimates for Motorola and RIM with just over $2 and 5 billion, respectively. Below we provide some reasons why Apple can earn roughly double per unit sold than two of its competitors.
| 2010 Mobile Phones | Apple | Motorola | RIM |
| Market Share | 3.7% | 2.8% | 3.7% |
| Units Sold | 48.4 million | 36.4 million | 47.8 million |
| Pricing | $606 | $214 | $305.1 |
| Gross Margins | 49% | 28.6% | 35.2% |
| Gross Profits | $14.8 billion | $2.2 billion | $5.1 billion |
Apple’s estimated $15 billion in iPhone gross profit is double that of the mobile phone operations of Motorola and RIM combined despite similar levels of market share — 3.7% for Apple, 2.8% for Motorola and 3.7% for RIM. This is largely due a much higher estimated average price for the iPhone, which is around $606 compared to an average of $214 for Motorola mobile phones and $305 for a Blackberry, according to the three companies. [1]
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3 Reasons for iPhone’s Moat:
The changing trend in the mobile phone industry is the increased importance of software. This is where Apple excels and has built a considerable moat versus its competitors even though it entered the smartphone market later than RIM, Motorola and Nokia (NYSE:NOK).
We believe the factors behind higher iPhone profits are its unique features, strong app store, and the halo effect generated by its other products.
1) Unique Features: The iPhone’s unique touch screen interface, and the intuitive and user friendly features are some of the factors behind its success. The new iOS 4 has had a few improved features such as multitasking.
2) App Store: Apple’s app store has around 300,000 apps, [2] far more than any of its competitors. It is evident from the fact that Google (NASDAQ:GOOG) Android is a distant second with about 90,000 apps. [3] The large number of apps plays an important role in determining which phones consumers will choose.
3) Halo Effect: We believe the halo effect of Apple’s other products, including iPods and Mac computers, is one of the most important factors behind iPhone’s success.
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You can see the complete $418 Trefis Price estimate for Apple’s stock here
You can see the complete $72.34 Trefis Price estimate for RIM stock here
You can see the complete $8.30 Trefis Price estimate for Motorola stock here
Notes:- Pricing data estimated from the quarterly filings of first three quarters of 2010 [↩]
- See Seeking Alpha: Apple FY Q4 2010 Earnings Conference Call Transcript [↩]
- See Seeking Alpha: Google FY Q3 2010 Earnings Conference Call Transcript [↩]