Jase88, we obviously get our information from different sources but Apple has very high margins on the iPhone.

16 GB version of the iPhone 4 carries a Bill of Materials (BOM) of $187.51 (iSupply (http://www.isuppli.com/Teardowns/News/Pages/iPhone-4-Carries-Bill-of-Materials-of-187-51-According-to-iSuppli.aspx))

Now of course this is just the cost of the hardware and doesn't take into account costs for OS, R&D, Marketing and other overhead etc., but I think you get the picture.
Right. And this device retails for $199. So how is it that Apple is making a huge profit on this hardware?

The majority of the iPhone retail cost is subsidized by the carriers in exchange for service contracts. The cheapest iPhone 4 retails for $659 at the moment.

The majority of the iPhone retail cost is subsidized by the carriers in exchange for service contracts. The cheapest iPhone 4 retails for $659 at the moment.
The contract data plan revenue is shared between the carrier and Apple. This is a fact. Apple simply borrowed the RIM business model. Only Apple's infrastructure costs aren't as high as RIM's. Monthly service fees account for the majority of the profit Apple sees from it's iphone.

Apple's deal with carriers is for the duration of a contract. Thus, if I purchase a device off contract, the carrier is then on the hook with Apple regardless. So the carrier charges a higher fee for no-contract devices to offset the fees it must pay to Apple.