New iPad costs more to make, but Apple eats the difference

“Apple is taking a hit for new iPad customers,” Eric Mack reports for CNET. “That’s because the company’s bill of materials to make the next generation slates has apparently gone up, but the retail price has not.”

“According to an initial tear-down analysis by IHS iSuppli, the cost of parts found in the new iPad with 32GB of storage and 4G capability is 9 percent higher than that of an iPad 2 with a 3G radio,” Mack reports. “The report says the midrange new iPad costs Apple $364 for the parts, plus another $11 or so to assemble, for a grand total of $375, or just over 50 percent of the retail price of $729.”

Mack reports, “Not surprisingly, anticipated new features like Apple’s Retina display, 4G LTE, and a larger battery seem to be to blame for the increase in the bill of materials for the new iPad.”

Read more in the full article here.

25 Comments

  1. I that’s a guess. Maybe Apple made up for the cost somewhere else in the supply chain or received better than market price.

    Who know but Apple. Something tells me they did get better pricing.

    1. It’s also possible that, with that huge warchest, Apple is willing to accept a (slightly) smaller profit for the latest iPad. That other article raised the possibility of competitors attacking Apple on price, but forgot to consider that Apple can do the same thing.

    2. A rule of manufacturing is that the more you make, the less each additional unit will cost.

      Maybe Apple is being aggressive on the price, expecting to make gazillion units and doing it more efficiently in the not too distant future.

      This rule is why Apple can sell the iPad 2 for $399, the iPhone 4 from $99 and the iPhone 3GS for $0 (both with contract of course).

  2. No wonder Apple has so much money in their bank account. If the iPad costs about half as much to make as it does for someone to buy then that’s crazy. Apple could clearly bring down the price quite a bit. Not everyone can afford an iPad at the price it’s at.

    1. Apple should not lower prices on new iPads and lose out on margins merely to sell products to consumers who can’t or won’t pay for Apple products. Apple absolutely needs to maintain its pricing structure. When Wall Street hears that Apple is losing margins by the slightest amount, the share price is driven down. No good. The consumers that don’t wish to pay more, should not own Apple products. Those consumers need to buy a product from a company that is willing to sacrifice profit margins.

      As a shareholder I don’t want Apple selling to consumers who refuse to pay more for Apple products. I’d rather Apple lose market share than lose profit margins. The company is running like a finely tuned clock and there’s no need to change policy. I also don’t want to see Apple lowering quality to sell less-expensive products to cheapskates. Apple hasn’t gotten that desperate, yet.

    2. This analysis only considers the cost of parts and assembly. There are also costs for developing the OS and bundled software. There are costs for testing. There are costs for marketing. There are costs for shipping. There are costs for customer and technical support. There are costs for running the servers used by iCloud and other “free” services. There are costs for planning and executing future development. And I’m sure I missed other significant “operational” costs…

      > Not everyone can afford an iPad at the price it’s at.

      Not every company can afford to do what Apple does, precisely because Apple products command the price tag per unit that provides a healthy profit margin.

      Also, Apple products become more affordable after one year. The iPad 2 is still a great product, and it’s $399 ($349 as an Apple-certified refurb).

      http://store.apple.com/us/product/FC769LL/A

    3. “Not everyone can afford an iPad at the price it’s at.”

      I can’t afford a Rolls-Royce at its’ price, therefor I don’t own one. What’s your point?

    4. Typical. Manufacturing cost is just one part of the total cost. It doesn’t include the cost of engineering and design, nor the cost of licensing patents or the cost of advertising and selling. Look at any income statement to see gross margins and compare that to net margins after all the additional costs, including taxes. There’s a big difference.

      1. This happens every time iSuppli does their traditional tear-down. I’ve been seeing it since the original iPhone, through 3G, 3GS, 4, 4S, original iPad, iPad2 and now the New iPad. What iSuppli does is a very meaningful and vaulable data point: the actual cost of parts and labour to MANUFACTURE a device. Not the cost of thinking up, desigining, engineering, prototyping, manufacturing, distribution, retail, advertising, marketing, etc. The isolated cost of MANUFACTURING provides an excellent point of reference between a specific device and all other devices in Apple’s product line, as well as historic references. It shows how massive Apple’s profit margin is, which explains how Apple can dedicate such generous resources to R&D, design, engineering, retail, distribution, and all those OTHER costs. When compared to tear-down data for competing makers, it is clear how good Apple has it (iSuppli said Kindle Fire costs MORE to manufacture than what Amazon charges for it at retail, which means that Amazon is giving free money to its customers when they buy the Fire).

    5. The stated manufacture price is not the true final cost of an iPad. There are other overhead costs that can push per-unit cost beyond $400. Example: packaging, shipping, warehouse, import tax, retail store, utilities, Ads, legal fees, etc.

    6. I’ll accept what you said Mr. Big Mac when you can go and purchase all the raw parts and manufacture your own iPad from thoes parts, main-board, chips, royalties, etc at Apples selling price.

      See the point is parts are cheap just like words until the final product is finished, and let’s also not forget the cost of IOS and all the FREE updates Apple gives.

      The iPad is cheap compared to all the other garbage plastic wannabes that have flooded the market, and low and behold Apple still sells more then any other low cost slap together peice of crap.

      And let’s not forget when the first iPad was released the stunned and dumfounded bozos that couldn’t believe how inexpensive Apple produced the iPad for, everyone said not less then 1000.00$, but so many forget.

      To expensive my arse.

      Have a nice day.!

    7. You obviously have little experience in business – retail in particular. I grew up in retail where wholesale cost was roughly 60% of retail price. What starts out as a 40% margin is whittled down when one takes into account the store’s rent, utilities, employee wages, insurance, etc.

      In Apple’s case, though parts and assembly are estimated to comprise 50% of the unit’s sale price, that doesn’t yet factor in the R&D cost that went into the product, nor the software, nor the cost of air freight, nor the cost associated with selling the product to you.

  3. It’s similar to the situation when the original iPad was released. The production cost was initially higher than Apple wanted, but Apple wanted to have the price for the lowest-cost model be $499, so Apple was willing to accept a lower-than-usual profit margin.

    As production ramped up, the cost per unit came down. If Apple still produced the original A4 iPad at 16GB (WiFi-only), they could probably sell it for $299 and make an acceptable profit per unit. In fact, you can buy one as an “Apple-certfied refurb” right now for $299.

    http://store.apple.com/us/product/FB292LL/A

    The same thing will happen with the newest iPad. Next year, it will probably be the $399 model (and maybe the iPad 2 will be also continue for $299).

    1. Exactly, during the year the prices for some of the newer parts, like the display, are likely to come down. Parts prices are dynamic making it a challenge to analyze a product based on this metric.

  4. Makes perfect sense to me. Where else can you find a similar hi-rez display for $499? Forget about the attached computing devices, where else is a display with this resolution sold (any size) at any price?

  5. Scale. Apple probably has doubled their orders of iPads over last year, so while individual components may cost more, bought in double the quantity of last year’s model, they probably get a very good discount.

  6. I don’t believe that iSuply has any idea of what Apple’s pricing for components might be. They’re buying on a scale that dwarfs everyone else, and they’re also investors in many of the factories that their components are coming from.

    -jcr

  7. I would pay another $200 for a 128GB storage option. But it looks like we’ll have to wait another year for that to happen. Apple will still make a larger iPad sector profit because of the vast increased volume of iPads they’ll sell – all Foxconn can make no doubt.

  8. If Apple’s profit share of the global cellphone market is around 75% with only 9% market share by units, you gotta think that the profit share in the tablet market is close to 100% considering that Amazon is selling the Kindle Fire at a loss and all the other tablet makers have been blowing out their tablets at a loss as well (HP, PlayBook, etc.).

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