Apple iPhone stands ahead of Google's most expensive Android-based smartphones when it comes to negotiating power with telecom providers such as Verizon, AT&T and Sprint for extracting higher subsidies.
Image by Yutaka Tsutano via Flickr
According to a study by AppleInsider, the price disparity of about $100-$200 favors the iPhone over Android devices with similar hardware costs. [1] The result is higher gross margins for Apple, something which makes iPhone the most valuable product for Apple. The iPhone accounts for more than 50% of our $500 price estimate for Apple stock, which is about 30% above market price.
See our complete analysis for Apple stock here
Higher subsidies results in higher margins for Apple
Most of the high-end Android phones sell at a retail price of $299 at Verizon while the basic version of the latest iPhone 4S sells at $199 with a two-year contract. However, these phones are sold for $649 without the contract. This means that Apple earns higher subsidy of around $450 for each iPhone sold compared to $350 earned by Android smartphones.
This attractive starting price gives an appearance that Apple iPhone is cheaper compared to high end Android phones, and hence helps it boost its sales. This in turn helps Apple maintain high iPhone gross margins of in excess of 50%.
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Notes:
- Verizon soaking high end Android buyers to make up for iPhone subsidies, AppleInsider, December 15th, 2011 [↩]
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