“According to a teardown analysis conducted by market-research firm iSuppli, the Touch isn’t just a stripped-down iPhone, but rather it has some unique design traits of its own. ISuppli pegs Apple’s total cost of components on the 8GB version of the Touch at $147, or about 49% of the $299 retail price on the device. This would follow the pattern of other devices in Apple’s iPod family that generally carry material costs that amount to about half, give or take a few percentage points, of the retail price,” Arik Hesseldahl reports for BusinessWeek.
MacDailyNews Note: iSuppli estimated only the total cost of components and does not factor in R&D, marketing, and other costs associated with Apple’s iPod touch. Those TV and print ads (we’ve seen touch ads on the backs of many major magazines since the devices release) are certainly not free.
Hesseldahl continues, “While it has the same core features as the iPhone (except, of course, those that require a phone), the Touch, unveiled on Sept. 5, likely represents the road map that Apple will follow on future iPods, says iSuppli’s Andrew Rassweiler. “We expect the click-wheel versions of the iPod to wane in favor of touch-screen-based models,” he says. The iPod Classic may turn out to be the last iPod to use a hard drive. Future versions are more likely to run exclusively on flash memory.”
“Given prior history, the iPod Touch will probably stay on the market in its current form for about a year, only to be upgraded sometime in the third quarter of 2008. During that year, Rassweiler expects, Apple will sell about 8.5 million units. In terms of sales popularity, that would put the Touch about midway in Apple’s family. The iPod Nano is the most popular model, expected to sell nearly 28 million units in 2008, while the Classic will sell about 3.5 million units, according to iSuppli forecasts.
Full article here.
I get mine, the 16GB version, next week. I can hardly wait.
Are we going to listen to this iSuppli crap again? To borrow an analogy from STARSHIP TROOPERS (the book, not the movie), a bad cook can turn perfectly good apples and other ingredients into an inedible mess thus reducing the value of those ingredients, while a good cook can turn those same ingredients into a fine pastry. Let’s see iSuppli turn out an iPod. Betcha they’d zune it.
Is OS X stille $6?
Microelectronics lesson from a former consumer electronics manufacturing engineer. What iSupply is trying to estimate is the Bill of Material (B.O.M.) cost for the touch. Do not be alarmed if the B.O.M. is 1/3 of the retail price. As Metryq eluded to, when I go to a restaurant and order a meal I am paying mostly for the preparation not the raw components.
Much of the cost is in assembly (hence why we sold out our economy to China), quality control, and logistics (what, you think everything magically gets to where it need to go?).
Just my $0.02
R&D;is expensive.
I guess iSuppli figured Apple employees went to work one day and found what Elves had left for them to sell. Unlike other business’ that return to the turds that were left from the day before – Apple employees most likely don’t count on Elves to do their research and product development.
What does ISuppli say about the cost of components in a Ford?
Or the cost of a Hanes t-shirt 3-pack?
@Drunk Cheney
What do you mean, Apple iPod Touches are NOT made by Elves??? Good cookies are made by Elves. They say so on TV. I think Apple products are made by elves.
Thats why they look and taste so good.
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Come on Apple Marketing! You are totally missing the boat – “I Touch Myself” by the Divinyls for the next iPod touch commercial!
“And sometimes when we touch
The honesty’s too much”
– Dan Hill
@Ray,
Well put. As a design engineer, I know that Non-Recurring Engineering (NRE) is not cheap either! For the rest of you, NRE is all that design and innovation work. The good thing about NRE is that you can amortize it. You build the cost of NRE into the first N number of units you build and sell. From unit N+1 on, that turns to profit.
Profit is the game that Apple has figured out.
“I think Apple products are made by elves.”
But the glossy ones are made by elvers. Pretty slick.
it is funny that every time these studies come out every one jumps to Apples defense….
…are there really people out there who think the cost of the parts should be equal to the cost of the final product? do they buy bottled water?
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The iPod touch itself will outsell the entire Zune lineup (their flash model included).
@ Ampar
“And sometimes when we touch
The honesty’s too much”
– Dan Hill
Yikes
Grigori, I just have to keep searching for WiFi hotspots until the fear in me subsides.
“do they buy bottled water?”
I think they are bottled water.
What is the purpose of these iSupply studies? Who gives a sh*t. As pointed out very well above, and in previous versions of this same article, the cost of materials is only a small piece of the production cost of a product. So I ask again, what is the purpose of publishing these iSupply studies. It is like they want to instigate dissatisfaction among iPod buyers.
That’s nothing. In retail, as a general average, you take costs x 4 to get the final price.
My Grandmother’s medicine for Alzheimer’s cost 8 cents a pill to produce and $20.00 at the pharmacy.
If thats true, then heck, Apple isn’t earning much per iPod.
49% is material cost…
I wonder what the return is per iPod?
You guys are buffoons. Estimating the variable costs of a device is useful, even if you don’t get it.
one needs to remember… the actual cost to Apple is probably somewhere around $80 or $90 after the volume discounts.
Very pathetic of Apple.
It only costs $147 to produce and they charge you $399? No wonder they’re so profitable with these overpriced pieces of crap.
So Apple is actually in this business to make a profit? Shocking! Now let’s get back to those evil record companies and their over inflated prices…
Peter stated, “Very pathetic of Apple.
It only costs $147 to produce and they charge you $399? No wonder they’re so profitable with these overpriced pieces of crap.”
Peter, you should read the article before the flaming begins. They are talking about the 8gb version. List price $299. That takes 25% of the point out of your statement. Eh?!!?
“It only costs $147 to produce and they charge you $399?”
The cost of components is $147. Apple’s products, of course, design, assemble, ship and market themselves just like everyone else.
Very pathetic attempt at trolling, Pedro. Aren’t you missing gym?
Ray is right – “Much of the cost is in assembly (hence why we sold out our economy to China), quality control, and logistics…”
In addition, as others have pointed out, there is R&D;, warranty coverage, advertising, distribution (logistics), wholesale versus retail revenue (Walmart does not pay the retail cost to Apple), administrative overhead, etc.
While it is interesting to get an idea of the material costs of a product, the intended conclusions would be better supported by gross and net margin data which only Apple can supply. Material costs in the range of 50% indicates to me that the retail price that Apple has assigned is within the bounds of reason, at least. Given the supply/demand situation, I don’t think that Apple is gouging the consumer by any means. You will notice that the retail prices for M$’s Zune copies of the iPod nano and classic are identical (not including discounts and incentives to move a few off of the shelf).
The standard “rule of thumb” ratio for Production Cost to Retail List Price is 7:1.
That’s right, folks. If it costs me $10.00 to produce an item (assembly and materials), then in order for all the links in the chain to get paid, you will pay $70 for the same item.
You can mitigate some of these fees by eliminating various “middle-men” and financial types in the chain.
I think it’s remarkable that Apple can make a profit with only a 25 point spread.
Yeah right, the 16 Gigabyte Touch has what, a whole $32 dollars tacked onto it for the extra Flash memory?
The iPod Touch should be $200 and $299 respectively. They could make up for it by selling TONS more units.
Creative has a 32 Gig Zen model for like $300 now. They don’t have nearly the power over the Flash memory market that Apple does.
Face the facts, it is overpriced to pad Apple’s profits.
@Peter
Your Creative Zen probably has only $60 of components in it.
I wouldn’t know, Spark. The fascist media only does teardowns for Apple’s overpriced junk.
Of course, I wouldn’t trade any of my Apple stuff for nothing. Except a copy of Vista Ultimate or a Zune 2.0…
Shepherd Jobs has pulled one over on you. Hahahaha
ADD in all the other costs:
– advertising
– packaging
– the os
– intellectual rights / patients / copy write protection from lawyers
– delivery of units to the stores
– sales staff
The components are only one part of the puzzle in marketing.
I am extremely surprised how profitable Apple is.
Steve makes what — 25 bucks at the end per purchase?
By “Steve” I do mean Apple. As he is the essence of the co.
Dougless
This Zen for 300 bucks sounds good.
I see all the ADVERTISING – none! Well maybe some print.
What about the UI… is it MULTI-TOUCH? – Probably not.
All plastic casing… wow.
I agree… the iTouch is rather high in price and the difference in 8 Gb of solid state Flash ram is MUCH higher then 32 bucks.
BUT you can continue to dream the dream.
Have a good day Peter.
Dougless
(Psst, Dougless. Peter is high and most likely more than one person. Just thought you’d want to know.)
To those that think the price discrepancy between $147.00 of parts and the price that Apple charges for the iPod Touch is out of line. I suggest that you pull $147.00 dollars out of your savings account and build something comparable to the iPod Touch.
When you are finished be sure to alert the media.
You’d think Apple would have a special deal to get cheaper components, because I doubt the cost of the components for very iPod touch is $147. By the time you add in all the extra costs, as well as retail costs or postage costs if brought online, there is jack all profit.
To those who think Apple is a rip off, you really need to wake up and smell the rest of the world. As someone mentioned earlier most other companies have a much larger mark-up, usually around 300% to the retail price.
Some of you have obviously been living under a rock for the last century. If what iSuppli is right, then Apple is making f-all profit at the end of the day. Most other companies have much larger profit margins.
“Peter is high”. Naw, he’s as low as it gets.
iSuppli? iWish!
“Apple employees most likely don’t count on Elves to do their research and product development.”
Microsoft does.