Researcher iSupply took a look inside the latest iPod to find out how much Apple is making off it and who supplies its parts. Apple unveiled the iPod nano on September 7th and the ultra-thin digital music player has been met with rave reviews.
Arik Hesseldahl writes for BusinessWeek, “Now that the Nano is on the market, attention has turned to more practical questions. Among them: How fat are Apple’s margins on it? …Market research firm iSuppli set out to satisfy the curiosity by buying the $199 2-gigabyte version of the Nano and tearing it apart. The verdict? It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%. That’s consistent with the margins on earlier iPod versions and serves as a reminder of what a profit machine the iPod family of products has become for Apple since it was introduced in 2001.”
Find out what’s inside Apple’s iPod nano in the full article here.
Advertisement: Apple iPod nano. 1,000 songs. Impossibly small. From $199. Free shipping.
Related articles:
Chip analyst: Apple is probably losing money on iPod nano – September 19, 2005
USA Today: ‘iPod nano a hit’ – analyst predicts 26 million iPods will be sold in next two quarters – September 19, 2005
Also-ran MP3 player makers miffed by Apple’s impossibly low price for iPod nano – September 09, 2005
Seeing how they aren’t including R&D, advertising or shipping costs, I doubt that Apple has a 50% margin on the nano. Maybe 25-30%, but not 50%.
hmmm … I wonder what the profit margin must be on Microsoft Office Suite priced at, say, $450? …
the verdict is still just an estimate
Why do we care? Doesn’t Steve know which end is up?
These numbers are not consistent (especially the reference to the historical numbers on the earlier iPod versions) with the legally binding statements Apple has made during their quarterly financial conference calls. Apple has stated their gross margin on the iPods is in the 20-30% range. Thus if the iPod nano costs a similar amount to build, package and distribute then on a $199 iPod nano the costs to build, package, ship, etc. comes to about $140-$160. VERY different from the $90.18 these guys came up with. I don’t have the reference here, but there was a recent report by another analyst stating the iPod nano’s flash chips cost almost half the selling price of the player.
This reminds me of one research group that put together a study on how much it cost Apple to make a Mac Plus way back when. They had Apple’s gross margin on the Mac Plus at well over 80%. Which only further cemented people’s thoughts that Macs were way over priced. In the late 80s Apple’s gross margins on Macs at times did exceed 50% (as a historical search through their 10K and 10Q filings will show), but that time is long, long past.
Gross margins do not include accounting for indirect costs such as marketing and R&D. Those things come out of the 20-30%. Apple’s “pre tax” profit on iPods (if it were even possible to figure out) is probably just a few percent — if that.
Normally a product is wholesaled to a retailer at least at 50% of the retail price (to Best Buy, target, etc). Half of $199 is $99.50.
So Apple is making a $1 when it is sold via a non-Apple retailer.
I agree with the above comments about the omission of R&D and design work, amongst marketing etc, and also about how Apple should be getting a substantial discount for taking on a large order from Samsung for the Flash memory.
But more than anything, I think its perfectly justified to have profit margins if the product is question is that desirable. If customers have the cash and are willing to buy something that desirable, let them buy it at that level. Once the market becomes competitive enough to challenge the iPod nano, then I’m sure the price will drop to equivelent levels.
The world is full of luxury goods that are desirable and blimmin’ expensive (Ferraris, the top-notch Nokia phones or even the “Vertu” luxury gold-plated mobiles). In some ways, it becomes an icon to admire and aspire to. Afterall, the high price of the original iPods didn’t stop it from becoming a big success… ditto the iPod nano.
Congratulations to Apple for coming out with such a bold design.
accountant,
after working at an authorized apple reseller, i found out why everyone sells apple’s products for the same price (give or take a few dollars). they wholesale their computers and ipods for about 80-85% of the retail price. it’s very hard for apple resellers to make a lot of money with such low margins, but it’s a labor of love.
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b – everyone has to sell Apple products at the same price because Apple demands it. 15% profit margin to a retailer???? Hmmm – Just $30 to the retailer to stock, advertise, sell a nano? Apple gets 85%???
The analysis is obviously only about the the physical costs to put an iPod together. Costs like R&D and marketing would be totally unknown, so if the nano costs $90 in parts then we can be relatively confident that Apple is getting gross margins of 20-30% in the end.
This is useful analysis, as opposed to the so-called junk that was out earlier about “Apple probably loses money on each nano.”
Say Apple does have 50% profit on each iPod nano that is sold. If Sony were to create a new portable player that could actually compete with the nano (price, performance, size, etc…) Apple could simply drop the price and blow Sony out of the water.
NewType, currently Apple is losing money on each iPod nano that is sold. They will continue to lose money on each one until they sell enough units to recoup the costs of R&D, promotion, marketing, distribution, assembly, overhead, and all of the other various indirect costs of developing a new product and a company. Once Apple has sold enough units, probably a few million, then everything after that is all profit
About the most informed and intelligent article MDN has ever commented on.
Old Steve the wheeler dealer is hard at work. 😀