iPhone 5 Costs May Be Eating Apple’s Gross Margins

How much longer can Apple maintain the high margins it has long commanded for devices like the iPhone? Not much longer, says Pacific Crest analyst Andy Hargreaves, who believes the company’s gross profit per device has risen as high as it will ever go.

Hargreaves says the cost of goods sold for an iPhone 5 is higher than expected — about $370 — and he figures that will trim Apple’s overall gross margin for the December quarter to 38.8 percent from 40 percent. “Apple’s gross profit per unit has likely peaked,” Hargreaves theorized in a research note to clients. “Declining gross profit dollars per iPhone and volume sales of iPad are driving lower gross profit per unit of Apple product sold.” That may well be the case. In the third quarter of 2012, Apple’s gross profit per unit declined for the first time since the iPhone was introduced. And Hargreaves believes it will probably decline further through the end of fiscal 2013. With that in mind, he trimmed his target on the company to $645 from $670.