According to market analyst Charlie Wolf of Needham Research, Apple could drop the subsidized price of the 8GB iPhone 3G to $99 and still manage a 42.3% profit margin:
The financial expert estimates that the average, unsubsidized price of an iPhone 3G in the summer was $666 and so would give Apple a nearly 50 percent gross margin on each sale as well as a heavy subsidy from AT&T of $450. Both give Apple a large amount of space to adjust its price and could see the phone maker drop the price of an 8GB iPhone to $99 while still supplying a comfortable 42.3 percent margin...
Any such price drops would be potentially devastating to competitors in the market, according to Wolf. The analyst believes that a $100 cut in the iPhone 3G's advertised price could "double or triple" projected sales and quickly overtake most other smartphones on the market and leave only successful but "niche" smartphone manufacturers like Research in Motion, which produces the BlackBerry.
That certainly makes sense. With Apple's exclusivity agreement with AT&T locked in for the foreseeable future, it seems like the better way of doubling or tripling iPhone sales — selling iPhones unlocked, or providing them to all major carriers — isn't going to happen any time soon. But from a mere financial perspective, the iPhone's success over the past year — especially if you push all their iPhone sales into the quarter in which they sold, as opposed to spacing the subsidy fee over a two year period — has rapidly reinvented Apple as primarily a phone company: the iPhone is generating massive amounts of bank. Apple can afford to drop the price more to get it in more customer's hands, and I imagine they will. Its happened before, after all.
iPhone could hit $99 [Electronista]