Jaws dropped at WWDC when Apple announced its 3G iPhone would be $199 but according to analysts the phone costs Apple just $173 a piece.

While $199 made for a punchy headline ATT is thought to be paying Apple $500-525 per phone with customers lured into contracts that more that compensate ATT for such an investment.

The cost represents a 23% reduction in costs for Apple from their first generation handsets, mainly due to component cost reductions, and represents a staggering 65% profit margin.

While this all bodes well for Apple investors and lovers of tech, the obsene margin will only grow as component costs tumble with expectation costs could drop to $148 in 2009 and to $126 in 2012. A greaat investment in anyone’s language.

Come July 11 as you sign on to a 3 year ga-zillion contract for your new GPS friendly iPhone try not to think about the fact that that GPS processor costs Apple $3.60