One Way Apple Could Kill Its Empire
While hardcore fan boys and girls would happily shell out $600 for an iPhone, most iPhone owners might opt for another, less expensive device in the absence of a subsidy. At the very least, they might be less likely to take the plunge multiple times as Apple introduces new iterations of the smartphone.
Consider the following admittedly rough math. We can safely say that wireless carriers eat about $400 for each iPhone sold. On an estimate of 30 million iPhones sold per quarter, you're looking at about $12 billion in subsidies every three months. One report estimates that it costs Apple $196 to make an iPhone 4S.
In its most recent quarterly report, Apple credits iPhone with the company's impressive gross margin:
The gross margin percentage in the second quarter of 2012 was 47.4% compared to 41.4% in the second quarter of 2011. The gross margin percentage for the first six months of 2012 was 45.9% compared to 39.9% in the first six months of 2011. The year-over-year increase in gross margin was largely driven by favorable sales mix towards products with higher gross margins, particularly iPhone, lower commodity and other product costs, and leverage of fixed costs on higher net sales.