Losing Money on the iPhone and Making It up on Volume

Apple is likely to make so much money from its share of iPhone usage fees paid to wireless phone companies that it can sell the product at a loss and still make money. It can even cover the cost of its $100 rebates to people who bought the phone before it cut the price to $399.

That’s the conclusion of Toni Sacconaghi, an analyst with Sanford C. Bernstein. In a report issued late last week, Mr. Sacconaghi undertakes a complex analysis that concludes that Apple is receiving significant payments from AT&T, a carrier with exclusive US rights to the iPhone, for the privilege of partnership. This is similar to the deals Apple is reportedly about to announce in Europe.

The report estimates that Apple will sell seven million phones in its fiscal 2008, generating $1.05 billion from the sale of the phones and $715 million from carrier payments. That’s 41 percent of Apple’s iPhone revenues.

Read the whole article @ NYTimes

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