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“iSuppli on Tuesday published the results of its Apple TV teardown, which found a total preliminary estimated production cost of $63.95,” Lane reports. “That price includes the cost of additional item boxes with the product, the research firm said.”
Lane reports, “The most expensive component was estimated to be the custom-built A4 processor, which sports 256MB of RAM. The Samsung-manufactured chip has an estimated cost of $16.55… ‘The Apple TV’s remote control represents more incredible mechanical engineering from Apple,’ said Andrew Rassweiler, director, principal analyst and teardown services manager, for iSuppli. ‘The remote appears to machined from a solid piece of aluminum. Because of this, the electronics of the device must be slid in through small holes on the side, similar to putting a ship in a bottle. It’s a clever and a detail-oriented piece of design that makes the remote very pricey and very unique to Apple.'”
Read more in the full article here.
MacDailyNews Note: As always, these estimates exclude R&D, software, packaging, and marketing costs which all contribute to the final retail price.
[Thanks to MacDailyNews Reader “Lava_Head_UK” for the heads up.]
This is precisely why most people do not understand the true meaning of the word ‘Value’.
They never take into account the effort required to design these devices in the first place and only see the total cost of materials. They almost no concept of anything beyond that.
I think it’s also the reason why other companies fail to compete with Apple. They seem to have a completely hap-hazard approach to design – especially interface design.
This is precisely why most people do not understand the true meaning of the word ‘Value’.
They never take into account the effort required to design these devices in the first place and only see the total cost of materials. They almost no concept of anything beyond that.
I think it’s also the reason why other companies fail to compete with Apple. They seem to have a completely hap-hazard approach to design – especially interface design.
…”these estimates exclude R&D, software, packaging, and marketing costs which all contribute to the final retail price.”
Well, that’s not exactly how it works. Retail price for a product is set based on what market will bear; not based on how much a product cost to develop, manufacture and advertise. The goal is to set a retail price well above the price of components and cost of delivery to retail channels, so that profits from such price can fuel future R&D for subsequent products. This isn’t always the case. Some companies often set retail price below the actual component price (MS Internet Explorer, X-Box and Zune are fine examples), deliberately losing a lot of money on such product for strategic reasons (to choke a competitor to death, or to make up on a related product, such as games in the case of X-Box).
It is very important to know what is the price of components that go into a piece of hardware. That price, together with the estimated cost of putting them together (fairly low, with current manufacturing automation) and delivering them to channels (easily quantifiable) gives us the level of profitability of that product.
Apple’s products have consistently had a wide gap between the retail price and total price of components (sometimes even over 50%), while Dell, HP, Acer rarely (if ever) cracked 15%.
There is a reason why Apple keeps innovating; it can afford to.
…”these estimates exclude R&D, software, packaging, and marketing costs which all contribute to the final retail price.”
Well, that’s not exactly how it works. Retail price for a product is set based on what market will bear; not based on how much a product cost to develop, manufacture and advertise. The goal is to set a retail price well above the price of components and cost of delivery to retail channels, so that profits from such price can fuel future R&D for subsequent products. This isn’t always the case. Some companies often set retail price below the actual component price (MS Internet Explorer, X-Box and Zune are fine examples), deliberately losing a lot of money on such product for strategic reasons (to choke a competitor to death, or to make up on a related product, such as games in the case of X-Box).
It is very important to know what is the price of components that go into a piece of hardware. That price, together with the estimated cost of putting them together (fairly low, with current manufacturing automation) and delivering them to channels (easily quantifiable) gives us the level of profitability of that product.
Apple’s products have consistently had a wide gap between the retail price and total price of components (sometimes even over 50%), while Dell, HP, Acer rarely (if ever) cracked 15%.
There is a reason why Apple keeps innovating; it can afford to.
That didn’t come out quite right; obviously, primary reason for innovation at Apple is the presence of innovators (Jobs, Ive, Forestall, etc). Of course, money helps a lot…
That didn’t come out quite right; obviously, primary reason for innovation at Apple is the presence of innovators (Jobs, Ive, Forestall, etc). Of course, money helps a lot…
@Predrag
I think lots of companies can afford to innovate – M$ can certainly afford it. It’s just that they can’t seem to be bothered. Too much effort. There seems to be a very pervasive ‘low effort – high return’ expectation in a lot of companies. At least that’s what it looks like to me as a consumer.
@Predrag
I think lots of companies can afford to innovate – M$ can certainly afford it. It’s just that they can’t seem to be bothered. Too much effort. There seems to be a very pervasive ‘low effort – high return’ expectation in a lot of companies. At least that’s what it looks like to me as a consumer.
Any reason the stock jumped 10 bucks today?
Any reason the stock jumped 10 bucks today?
Plus tax.
Plus tax.
“As always, these estimates exclude R&D, software, packaging, and marketing costs which all contribute to the final retail price.”
—————-
and don’t forget profit.
“As always, these estimates exclude R&D, software, packaging, and marketing costs which all contribute to the final retail price.”
—————-
and don’t forget profit.
@ The Mac That Roared
MS is missing a single-minded leadership structure, and instead is composed of independent contradictory factions that are often at odds with each other. At Apple, if the company invests time into a particular product segment, it helps other segments. Improving the underlying code of OS X is good for iOS, for example.
At MS, products live in dozens of walled gardens with much less cooperation between departments. They have the money, it’s true, but they also have countless managers fighting over it and jealously guarding it.
@ The Mac That Roared
MS is missing a single-minded leadership structure, and instead is composed of independent contradictory factions that are often at odds with each other. At Apple, if the company invests time into a particular product segment, it helps other segments. Improving the underlying code of OS X is good for iOS, for example.
At MS, products live in dozens of walled gardens with much less cooperation between departments. They have the money, it’s true, but they also have countless managers fighting over it and jealously guarding it.
“Any reason the stock jumped 10 bucks today?”
Possibly on ‘Jeffries & Co’ initial coverage of stock, with the initial rating of ‘Buy’ (backed by enthusiastically exuberant explanation).
“Any reason the stock jumped 10 bucks today?”
Possibly on ‘Jeffries & Co’ initial coverage of stock, with the initial rating of ‘Buy’ (backed by enthusiastically exuberant explanation).
A $99 retail item that costs $62+ to build is a loss leader. This is the razor so Apple can sell the blades.
Seems few understand cost to build vs retail price vs mark up. I use to own a retail store and I work in manufacturing so I know both ends.
As an example, items sold in info-mercials sell for 4X their cost to build. If they dont then the info-mercial is not produced. Period. The upselling (shipping charges, etc) is icing on the cake.
Normal retail is not much different. The markup between cost to build and retail price has to be BIG else someone loses money. If it dont sell at the right retail price then it sells at what the market can bear and the product is killed.
A $99 retail item that costs $62+ to build is a loss leader. This is the razor so Apple can sell the blades.
Seems few understand cost to build vs retail price vs mark up. I use to own a retail store and I work in manufacturing so I know both ends.
As an example, items sold in info-mercials sell for 4X their cost to build. If they dont then the info-mercial is not produced. Period. The upselling (shipping charges, etc) is icing on the cake.
Normal retail is not much different. The markup between cost to build and retail price has to be BIG else someone loses money. If it dont sell at the right retail price then it sells at what the market can bear and the product is killed.
@ Predrag
> Retail price for a product is set based on what market will bear; not based on how much a product cost to develop, manufacture and advertise.
That may be true as a general statement, but Apple would not attempt to sell a product if it was not possible to make a healthy per unit profit. Steve Jobs obviously wanted the $99 price point for the U.S. market. If it cost too much to make one to sell it for $99 retail and make that profit, this new Apple TV probably would not exist outside the secret lab.
So in this case, the price of the product was set primarily based on the need to sell it for $99. It’s current specifications and design are set to allow the $99 retail price. Unlike other companies, Apple does not play the “down the road” profit game, so any new hardware product must be profitable immediately.
I don’t know about all the analysis by iSuppli, but I would have guessed that the new Apple TV costs between $60 to $70 to make.
@ Predrag
> Retail price for a product is set based on what market will bear; not based on how much a product cost to develop, manufacture and advertise.
That may be true as a general statement, but Apple would not attempt to sell a product if it was not possible to make a healthy per unit profit. Steve Jobs obviously wanted the $99 price point for the U.S. market. If it cost too much to make one to sell it for $99 retail and make that profit, this new Apple TV probably would not exist outside the secret lab.
So in this case, the price of the product was set primarily based on the need to sell it for $99. It’s current specifications and design are set to allow the $99 retail price. Unlike other companies, Apple does not play the “down the road” profit game, so any new hardware product must be profitable immediately.
I don’t know about all the analysis by iSuppli, but I would have guessed that the new Apple TV costs between $60 to $70 to make.
BTW, the blades are selling at a penny per minute. A 99 minute movie for 99 cents. Apple is selling airtime. Not much different than cell phones and minutes, hey? And we pay for the box and the internet connection.
BTW, the blades are selling at a penny per minute. A 99 minute movie for 99 cents. Apple is selling airtime. Not much different than cell phones and minutes, hey? And we pay for the box and the internet connection.
@predrag (and others)
At a production cost nearly 2/3 of the retail price, it’s fair to say that Apple’s profit margin on the AppleTV is slim-to-none. Though none would be quite out of character for AAPL. However, there are other reasons why a 0% profit margin on the hardware may be quite acceptable. In the case of the AppleTV, the more homes it lands in, the more content is delivered through iTunes. I don’t know what the profit margin is on the 80,000th rental of a $4.99 movie, but I’d venture to say with some confidence that it’s well over 50%.
Another perspective: a year after an AppleTV is sold, how many TV shows and movies have been rented? How many Netflix movies streamed through AppleTV (well, maybe not. I’m sure Apple just asked Netflix nicely if they would stream through AppleTV just so users would be able to stream more content–NOT! Not without some change dropped into AAPL for each streamed item.)
I don’t have TV if it isn’t iTunes, Hulu, Netflix or Internet. I spend $9 a month on Netflix, and maybe $30-40/month on iTunes. Let’s just say $300 for the year. That’s two months worth of cable. I watch what I want to watch, when I want to watch it. Without commercials. Maybe Apple only makes 30% margin on iTunes. So the AppleTV can be expected to turn a break-even at time of sale into a 100% markup after 1 year, and pure gravy after.
Apple is changing. And don’t think for a minute that this change is any less well designed than the iPhone or iPad. Watch.