The Cost Of 14 Million iPhones

Great observations by Turley Muller about blockbuster iPhone sales and drop in gross margin:

Where in the hell did Apple get that production capability? There is no way Apple could have turned out 14.1M units without materially added expense.

The 3GS benefited from no change in form factor, thus the molds. tooling, assembly process didn’t change.  iPhone 4 required a significant modification to the production process.

With more units sold come more expenses. If you add that the iPhone 4 required a complete change in the manufacturing process, well you get the idea. About the iPad:

I can envision a scenario where Apple would desire to announce lower iPad units just to keep entrants from salivating.

Take iPod for example – very expensive, only worked with Macs (latest with firewire). Then USB solution came, but still PCs didn’t have iTunes, thus significant work arounds required. Nobody took Apple seriously on iPod – too expensive & minute addressable market.

Couple, three years later – all in rapid succession – Apple releases iTunes for Windows, iTunes Music Store, cut prices and introduced the iPod mini. Within 9-12 months iPod share exploded from 20-30% to 70-80%.

I wouldn’t be surprised if Apple adopted this strategy once again. They let others think it’s a very niche product, then they blow the competition out of the water by constantly iterating. The question is: can they really play this game with almost 8 million units sold in 6 months?