Apple's iPhone Is Banking Big Bucks

Apple (AAPL) shares were flirting with $400 Wednesday after the company posted blowout June quarter sales numbers in nearly every product category.

Apple's eye-popping $7.79 a share profit was nearly $2 more than the $5.83 the street was expecting. The huge profit was fueled by shipments of 20.3 million iPhones to places like China, Brazil and Mexico. Apple booked $28.6 billion in sales for its fiscal third quarter, an 82% year-over-year growth rate that was more than $2 billion above analysts' estimates.

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The astonishing results highlight not only the international popularity of the iPhone -- even in the face of more muscular Google (GOOG) Androids -- but also the huge mark-up Apple enjoys on the iconic mobile phone.

With $13.3 billion in iPhone revenue in the quarter, Apple is raking in roughly $655 for each phone.

Considering a tear-down analysis by outfits like iSuppli, which estimate the build cost of the iPhone 4 at $187.51, Apple is capturing a tremendous profit by marking the phone up 3.5 times over the cost.

The strong sales-to-cost ratio helped Apple widen its gross margin to 41.7%, considerably more than the 38% analysts were looking for.

But that won't necessarily last.

Apple told analysts on the earnings conference call that the current quarter is back-to-school season, which includes a higher mix of lower-margin Mac sales. This will likely reverse margin gains of the June quarter. Apple guided for 38% gross margin in the current quarter ending in September.

One takeaway from the Apple earnings call is that while the company is tempted to offer a cheaper, stripped-down iPhone due to the potential sales volume it represents, it isn't pursuing it. If anything, Apple will sell old versions of the phone for less and urge people to pay up for the new models.

Asked repeatedly about whether Apple would seek more sales in the prepaid market with a cheap iPhone, acting chief Tim Cook told analysts that the company is comfortable pushing the premium products.

"It's up to us to convince people to maybe spend a little more for a materially better experience of product," Cook said.

The upcoming iPhone 4S, due in September, may challenge that proposition. The new iPhone is expected to be a minor upgrade to the current iPhone 4. And as reported first by TheStreet, the super iPhone 4G LTE is still a year away.

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