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Steve Jobs reality-distortion field has faded somewhat for many who first became enamored of Apple's iPhone during its introduction last week. It isn't quite a backlash, but an increasingly number of questions have arisen about the iPod/smartphone combo, even with some of its cool and innovative features. Where's the hard keyboard for business users? No Outlook synchronization? What about 3G, essential for most international markets? Is only one U.S. carrier enough? Why is the battery non-removable?

While this was bound to happen, it likely won't stop Apple and Cingular (in the process of being rebranded AT&T) from selling loads of iPhones out of the gate. The iPhone is due to ship this June. And when it does, Apple, as with the Mac and iPod, will see a hefty profit per unit sold, according to market research firm iSuppli.

iSuppli is, in part, known for its Teardown Analysis service, which physically dissects electronic equipment, including music phones, to determine exactly how much they cost to make.

While it hasn't had a chance to perform a detailed teardown analysis, (this can't happen until the handset is released), iSuppli has released a preliminary analysis of the iPhone. What it found is a smartphone with a gross profit margin of nearly 50 percent.

iSuppli estimates the $499 4 GB iPhone costs $245.83 to build (including materials and manufacturing) and the $599 8 GB $280.83, amounting to a 50.7 percent margin for the former and 53.1 percent for the latter. This means for every 4 GB iPhone sold, Apple could earn approximately $253 each, and with the 8 GB model $318. iSuppli's numbers don't include advertising and marketing costs.

Apple is a company known for its high profit margins, achieving margins in the range of 45 percent for its iMac and iPod nano products, according to iSuppli.

By having so much room between how much it costs to build an iPhone and its price tag, there leaves plenty of room for Apple to slash prices, which it just might have to do (and pretty quickly) in the highly-competitive music phone market: iSuppli expects 835 models to be introduced next year, and, today, it estimates there are 14 music-enabled mobile phones from the likes of Nokia, Motorola, Samsung and LG with competitive features.

“The most successful OEMs will be those already established in the mobile-phone business, that support all file formats and that have excellent sound quality,” asserted iSuppli wireless communications analyst Tina Teng. "Successful OEMs also must have excellent supply-chain relationships with suppliers of the kind of touch screen used in the Apple iPhone, Teng added.

The closed competitor to the iPhone is LG's KE850, which is due to ship later in 2007.


                     LG KE850

iSuppli expects the music-enabled phone market to grow from shipments of 441.7 million units in 2006 to 618.1 million this year, an increase of 39 percent.

The research firm thinks Apple's goal of capturing 1 percent of the total 1 billion-unit mobile phone market is doable.