During Monday’s Q2 2015 earnings call, Apple CEO Tim Cook discussed the Apple Watch’s margins, noting they are lower than that on other Apple products, while questioning the accuracy of estimated cost breakdowns on it and Apple’s other popular devices.
“I haven’t seen [them for Apple Watch], but generally there are cost breakdowns around our products that are much different than the reality. I’ve never seen one that is anywhere close to being accurate,” Cook said. He went on to say that the Apple Watch’s functionality is “absolutely incredible” with a lot of new features and innovative technology.
The breakdowns Cook referred to are cost breakdowns on components of the Apple Watch, which allow estimates of Apple’s profit margin on the device. While we haven’t seen any such breakdowns yet for the Watch, there have been estimates made for other Apple devices.
The iPhone 6 and iPhone 6 Plus have been estimated to have a parts and labor cost of around $200, resulting in a 69 percent gross profit margin, based on the $649 base price.
Estimates such as this usually come from firms like IHS iSuppli. Estimates such as this only take into consideration parts and labor, not considering other costs, such as: research and development, the development of the device’s operating system and software, marketing, and distribution, which all subtract from the bottom line.
Cook notes that it is “intuitive” that Apple Watch margins will be lower than the company average in the first quarter of its release, due to “a learning period.” Apple Watch margins will likely improve going forward, as component costs drop.