“Privately held iSuppli takes consumer electronics apart in order to estimate how much they cost to build. And while a teardown doesn’t account for the costs of design, software, manufacturing, or shipping, these cost estimates help fill in the blanks toward estimating the profit on each device sold,” Arik Hesseldahl reports for BusinessWeek.
“All told, the cost of the shuffle’s components, the headphones, and the packaging it ships in comes to US$21.77, according to iSuppli’s estimates. That’s about 28% of the device’s retail price. The smaller the component cost as a percentage of price, the higher the potential profit. This suggests the per-unit profit margin on the shuffle is higher than on other iPod models,” Hesseldahl reports. “The component cost for the first iPod touch released in 2007, for instance, amounted to about $147, or about 49% of its $299 retail price. The component cost of the third-generation iPod nano, also released in 2007, amounted to about 40% of its retail price.”
“iSuppli examined the insides of the four-gigabyte shuffle, which goes for $79. The main application chip used in the device, controlling music and other functions, comes from Samsung and costs $5.98,” Hesseldahl reports. “Samsung remains the king of Apple’s silicon suppliers, at least for the iPod and iPhone family. It supplies the main applications processor on the iPhone 3G as well as for the iPod touch. And like the other Samsung chips used in Apple devices, the one in the shuffle is based around a core design licensed from ARM Holdings (ARMH), a British chip designer in which Apple used to be an investor.”
Hesseldahl reports, “Samsung also supplied the four gigabytes of flash memory, used primarily to store music, at a cost of about $6.. The device contains a tiny lithium ion battery that costs $1.20, and that iSuppli analyst Andrew Rassweiler describes as ‘the smallest we’ve ever seen.’ And for a company that doesn’t ignore the tiniest of details, the most mundane of components are the most advanced available. The device’s so-called passive components—capacitors and resistors—are unusually small… half the size of what had previously been considered the smallest device of their type.”
Hesseldahl reports, “There are other costs in addition to components for which a teardown can’t account: The time and efforts of software engineers and designers, industrial designers, manufacturing, distribution, royalties paid on patents owned by other companies, and so on. When it last reported earnings on Jan. 21, Apple said its gross margin, a key indicator for profitability that takes into account costs to make all its products, was 34.7%. The company also said it expects a gross margin of 32.5% in the quarter ended Mar. 30, for which it will report results on Apr. 22.”
Full article, with more components and suppliers, here.
