Steve Jobs and Apple can cut the price of an iPhone to $99 and still make a reasonable profit margin, according to a business analyst.
Charlie Wolf of Needham Research said iPhone pricing has enough room to decrease their prices and still make a reasonable margin. He estimates that the average, unsubsidized price of an iPhone 3G model is $666, which gives 50 per cent gross margin for Apple. In addition, Apple gets a heavy subsidy of $450 from AT&T.
Both options give Apple enough space to cut the iPhone prices even further. If Apple reduces the price to $99 per phone, it will still make a comfortable 42.3 per cent margin for every unit sold, according to Wolf.
If we add the profits Apple gets from iPhone applications, music and video downloads, Apple will have even more room to offer it at a bargain price.
Another huge advantage with the $99 pricing is that many users will switch to iPhones from Apple’s competitors. It will allow only niche smartphone companies like Research in Motion, makers of BlackBerry, to compete.
Even though the current iPhone 3G is popular, Motorola has sold more RAZR phones because of its free pricing distribution arrangement with carriers. BlackBerry also occupy two of the top five positions in phone sales with their Curve and Pearl models which sell for $100 or less.