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Posted on 09/23/2005 10:44:33 PM PDT by martin_fierro
2GB iPod Nano costs $100 to make - researcher
By Tony Smith (tony.smith at theregister.co.uk)
Published Friday 23rd September 2005 14:54 GMT
Market watcher iSuppli has disassembled Apple's iPod Nano and, beneath the shiny but not entirely scratchproof (http://www.theregister.co.uk/2005/09/23/ipod_nano_scratching/) casing, it has found almost $70 worth of assorted chippery.
The 2GB Nano retails in the US for $199. Of that, iSuppli reckons, less that half - $90.18 - goes on components. Chuck in $8 per unit labour costs, and Apple's base margin is a whopping $100.82. You can probably add a little more for software development - they're paid in pizza, no?
iSuppli notes that the player contains PortalPlayer's 5021C audio controller chip, Wolfson's WM8975G codec part and a Cypress CY8C21x34 system-on-a-chip used to manage the input from the device's clickwheel.
PortalPlayer's products have found their way into all the iPods Apple has sold with the exception of the Shuffle series, which use a SigmaTel part - the STMP3550, according to iSuppli, which has presumably taken one of the screenless, Flash-based players apart too.
The clickwheel is believed to be the first one Apple has made itself, dropping former clickwheel supplier Synaptics - better known as a purveyor of notebook trackpads - in favour of a cheaper home-brewed alternative.
The key cost-saving component, however, is the Samsung-made NAND Flash. The 2GB Nano contains two 1GB Flash chips. Assuming claims that Apple has received a big volume discount from Samsung are true, iSuppli said it believes the memory costs $54 in total.
You can find a more basic dissection of the Nano here (http://arstechnica.com/reviews/hardware/nano.ars), courtesy of Ars Technica, but iSuppli's more expensive version ($499 - more than twice the price of the Nano the company took to bits, so Apple's not the only one making nice margins) comes with a much deeper-level analysis of the player's bill of materials (BOM) and other cost data. Ideal, in short, for consumer electronics designers who don't fancy tackling deconstructing the Nano themselves.
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"The 2GB Nano retails in the US for $199. Of that, iSuppli reckons, less that half - $90.18 - goes on components. Chuck in $8 per unit labour costs, and Apple's base margin is a whopping $100.82. You can probably add a little more for software development - they're paid in pizza, no?"
I love it when someone guesses raw material costs, fudges estimations of labor, and determines profit margins based on those 'facts' alone.
It's almost marx like.
It appears that http://www.isuppli.com/ does this sort of thing for a living.
They just may know what they are talking about.
One of my students had a nano in class on Thursday and I just had to have a look at it! He had the black case and it was scratched so when I get mine I am purchasing a skin for it.
A phrase comes to mind:
"They know the price of everything and the value of nothing"
You can price out component costs all you want, but you can not determine profit on those factors alone. I know the register likes to be cheeky, but claiming $100+ profit based on the cost of a materials list is just irresponsible.
Is this supposed to be a bad thing - or even a surprise - that somebody is making money on those little trinkets?
Still, it's not near the 50% gross margin the article tries to imply. They might be getting 15% but I doubt the cut for the rest of the supply chain leaves them even that much. The real money is in the content people (or more likely, their parents) buy and play on them. After they saturate the market that will pay for the little gadgets they'll start giving them away.
Jobs doesn't agree. Jobs has said that apple makes next to no profit from iTunes and that the majority of profits from the iTunes/iPod combo come from the iPod side.
Besides the article is little more than a tease to get people to buy the full report on the iPod nano for ~495.00. IOW it is an ad. :)
One should really order a case at the same time as the iPod itself. When the iPod arrives, take it out of its box while holding a soft cloth. Admire it for a moment. Then put it in the case and never take it out again. It's the only way you'll be able to prevent it from getting all scratched up and covered in smeary fingerprints.
Just got something like this for my iPod -- aluminum case with neoprene lining. Works GREAT!
This is what I used previously, but while it looked good, it didn't provide much protection.
Marx like? I think not. Any good business would try their hardest to estimate their comptetitor's product. Information is a valuable asset. I don't know if these people are right about nano's costs- but it is far from Marx-like to try estimate the cost of a product, quite the opposite.
Maybe I misunderstood, but I thought they were saying the opposite- that the cost of production was expensive relative to the retail price. I was surprised to read that they were that expensive to make.
Thirty years ago, the standard practice in the retailing I was involved in was to double it, and add freight-- so it doesn't look that out of line to me. And in case anyone is interested, I saw about 5% of the total price as profit- in a good year.
Let me see if I understand.
A basically worthless electronic trinket that cost $100 to make and sells for $200, and people are surprised?
We know perhaps a "case" for margins but that by itself is meaningless since we know nothing about R&D costs. They ignore the packaging design too. Lots of things. Register is almost the Debka File of the Tech world.
"You can probably add a little more for software development"
These are the same folks who go after pharmaceutical companies because the pill they charge $1 for only has $.03 of ingredients. Completely ignoring the sunk $500 million R&D expense.
On the thread, Hidden Cost of Free Trade (http://www.freerepublic.com/focus/f-news/1486862/replies?c=9) you disagreed with me when I claimed that people would not be willing to pay substantially more for a product simply because it was made in America.
The Ipod is a perfect example. My Ipod states, "Designed by Apple in California Assembled in China." In other words, it was made in China for $8 in labor.
If American labor was used to assemble the Ipod, it would cost hundreds of dollars more. And how many Ipods would be sold if the price of them was $400-$600 instead of $200?
Another possibility would be to raise the import taxes on the Ipods to "help the American worker."
But first off I don't know how raising taxes on this item would help American workers. And secondly, sales would definitely suffer if there was a stiff tariff levied on the product.
Please share your figures as to how building the iPod in the USA will more than double the price.
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