Apple iPod nano teardown shows Apple’s growing efficiency at production cost management

“The Apple iPod family of digital media players keeps growing in sophistication and popularity,” Arik Hesseldahl reports for BusinessWeek. “It’s also growing more profitable for Apple with each passing revision to the product, says market research firm iSuppli. The researcher has just completed a teardown analysis of Apple’s second-generation iPod nano, released Sept. 12. The conclusion: It costs Apple significantly less to produce a player with average memory capacity than it did a year ago.”

“One noteworthy switch Apple made is in its core chip supplier, says iSuppli analyst Chris Crotty. South Korea’s Samsung Electronics now provides the main microprocessor, known as a ‘system on a chip’ (or SOC), which replaces a processor from PortalPlayer,” Hesseldahl reports. “Samsung’s processor handles all the main functionality for the device, such as the user interface and management of music files.”

“Only one part of the nano was more expensive than on the prior player: the outer enclosure. The new aluminum casing adds more than $2 to the materials cost of the player, up from about a dollar on the older nano, according to iSuppli,” Hesseldahl reports.

Much more in the full article here.

Related articles:
Gartner: Apple’s new iPods priced for profits, not market share – September 18, 2006
Samsung claims to have won contract for next-gen Apple iPod chip design – April 26, 2006

13 Comments

  1. From the breakdowns I’ve seen, it only costs about $20 for all of the supplies to make a nano. Manufacturing and shipping seem to be the most expensive factors. Maybe they should move manufacturing stateside and give a little back to their largest consumer.

    MW=Outside.

  2. Off-topic, but: The ad above the comments section right now is “National Lampoon’s ‘Watch the hot blonde undress while her brother watches’ ” and the ad to the right is “Press the Fart Button — You know you want to.”

    Gotta pay the bills, I guess…

    And they’re still better (but less entertaining) than the occasional ads for Napster.

  3. If this article is accurate – with the savings on transistors and bare-bones components representing $1.80 or thereabouts – it probably represents the single biggest challenge to anybody wanting to challenge iPod’s market leadership. After all, $1.85 multiplied by 20 million is $37 million, which isn’t chump change.

    It’s extremely doubtful that any other manufacturer could exercise the same purchasing power or attract the kind of “sweetheart” deals to which the article alludes; in short, for Microsoft to make Zune competitive it needs to lower prices to a point where the first eight quarters may well be loss-making even before you take the risks of not selling any units.

  4. The cost of Flash memory has been dropping dramatically since 2001.

    Next time you buy a SD Card (or any flash product) you can thank Apple for creating the demand/production capacity that’s driving down the costs to consumers.

  5. Don’t we all remember when hand held calculators first came out (many, many moons ago!). Mine was a Texas Instruments calculator and inside it was IC’s, transistors, inductors, dozens of descrete components of all kinds. Go buy one today and look inside, all you will find is one IC. That is design efficiency as a product evolves. Good for Apple.

  6. Regarding- bringing iPod Mfg. back to the US

    Even if the labor cost difference between China and the US were negligible (it isn’t)- the logistics, and tax costs would be prohibitive.

    We are no longer a manufacturing economy in the US.

    So forget it.

  7. Regulation is the killer for US production. It’s hard to make money on something when you have a thousand state and federal regulations micromanaging every aspect of your business. Why do you think they don’t even make Levis in America anymore? It’s not greed. It’s called viability. If you’ve ever looked at how much it costs a business to employ someone, you’d know why businesses are headed off-shore.

    The only way to get them back is to drastically reduce the size of governmental interference. This will happen in probably two generations, as liberals aren’t having babies, but conservatives are.

  8. BustingTheSkullsOfIdiots: I agree with your assessment of too much government involvment but to characterize it as “liberals vs. conservatives” situation is greatly oversimplifying the issues.

    Both liberals and conservatives are moving for an increasingly larger, centralized government, with more regulations, laws and restrictions which typically just create more problems which then appear to require even more regulations, laws and restrictions which…

  9. BustingSkulls:

    You’re right to raise a flag about over regulation, but wrong to think that’s the reason why our manufacturing jobs are moving to China (primarily). The built-in wage advantage the PRC maintains due to their cheaper currency being pegged to ours (thus ensuring we never get any relief on that score) is one key factor. But the major differential, and not just with China but with Europe too, is the massive costs incurred by manufacturers here relating to the health care & retirement plans they have to fund. The latter is being aleviated somewhat by 410Ks, IRAs, and simple abandonment of plans (having the government pick up the tab). But the former is still huge, and getting bigger every year.

    The Chinese don’t have much of a healthcare system, but what they do have is state run, and the costs of everything there are so low that whatever isn’t taken care of by the hospitals & clinics is often easily affordable out of pocket. In Europe, their universal healthcare systems are much more comprehensive, but still cheaper than ours (simply b/c the governments aggressively negotiate prices). More to the point, those lower costs are also not directly bourn by any single company – but spread out among the entire populace. It’s a huge advantage for them, and probably the main reason why Germany – with it’s higher wages & even more rgulated environment – still manages to be a manufacturing powerhouse, while the US fades away.

    I know a message like that runs the risk of ruffling your conservative feathers the wrong way, and I say again that I’m all for being sensible when it comes to regulation of industry. Yet the fact remains that we could give ourselves a huge boost back into being a competitive manufacturing power again if we scrapped our comparatively inefficient retirement & healthcare systems.
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