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MacRumors
Sep 19, 2007, 10:54 AM
http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

Research firm iSuppli has torn down the latest iteration of the iPod nano (http://www.isuppli.com/news/default.asp?id=8490&m=9&y=2007) to find hefty component changes.

"The changes in components have resulted in significant cost reductions in the nano design, allowing Apple to offer a product that is less expensive to build and that has enhanced features compared to its predecessor," said Andrew Rassweiler, senior analyst and teardown services manager for iSuppli.

Specifically, iSuppli estimates the bill of materials (BOM) at $58.85 for the 4 GB nano and $82.85 for the 8 GB version. Apple sells the 4 GB model at $149 and the 8 GB model at $199.

As usual, the estimate is limited to the BOM and does not include costs for manufacturing, software, intellectual property, research and development, accessories and packaging. Still, the estimates can provide some insight into Apple's profit margin on a given product.

Article Link (http://www.macrumors.com/2007/09/19/teardown-reveals-nano-component-changes-cost-reductions/)



Eidorian
Sep 19, 2007, 10:55 AM
Good ol' iSuppli.

Time to wait for a refurb!

tschull
Sep 19, 2007, 11:03 AM
"As usual, the estimate is limited to the BOM and does not include costs for manufacturing, software, intellectual property, research and development, accessories and packaging. Still, the estimate can provide insight to how large Apple's profit margin will be on a given product.

Article Link (http://www.macrumors.com/2007/09/19/teardown-reveals-nano-component-changes-cost-reductions/)

So the message here is that manufacturing, software, intellectual property, R&D, accessories, and packaging are either minor costs or can be directly inferred from the cost of the components?

All I can tell from this data is that Apple's profits will be somewhere between zero and the retail price less the cost of the components. In other words, still a guess.

DTphonehome
Sep 19, 2007, 11:03 AM
As a shareholder, this is great news. I love to see huge margins.

If I were an Apple competitor, however, this would be incredibly frustrating...I'm sure no one can build these for anything near Apple's price.


All I can tell from this data is that Apple's profits will be somewhere between zero and the retail price less the cost of the components. In other words, still a guess.

You can't tell net profit margin from this info, but you can tell that Apple is building these way cheap, and selling them for a healthy price on the market, so it's safe to say that a good chunk of that ~$100 markup is profit.

QuarterSwede
Sep 19, 2007, 11:07 AM
$100 just for parts is great. All other costs will be easily taken care of when these sell like hot cakes.

Marx55
Sep 19, 2007, 11:09 AM
My question is: is that cost for a single component? Because otherwise, SINCE Apple purchases millions of components AT ONCE, will get 50% price cuts or even more!!! So, WHAT ARE THE REAL TRUE MATHS???

k2k koos
Sep 19, 2007, 11:09 AM
Not so sure about a good part of $100,- of profit, but a healthy one yes. It also indicates that Apple's products are indeed competitively priced, and can't really go much lower than they are, given that loads of people will have to be paid their wages, transportation costs, etc within the profit margin. good on :apple:

lofight
Sep 19, 2007, 11:11 AM
saw this houres ago but no prob... yes it seems like apple is going to have big margins at the end of this year!!

Gherkin
Sep 19, 2007, 11:13 AM
I wonder where they get that price for the NAND. Anyone have any data on how much the 8 GB of NAND cost in the black nano when it was released a year ago? It would be interesting to see how much it has come down in price.

DTphonehome
Sep 19, 2007, 11:14 AM
My question is: is that cost for a single component? Because otherwise, SINCE Apple purchases millions of components AT ONCE, will get 50% price cuts or even more!!! So, WHAT ARE THE REAL TRUE MATHS???

I'm sure they take Apple's discount on flash, and their unrivaled economies of scale, into account.

gkarris
Sep 19, 2007, 11:15 AM
I hear the markup on ALL MP3 players is 100%, so the 4Gig wholesale is $75 and the 8Gig is $100...

nagromme
Sep 19, 2007, 11:18 AM
"...does not include costs for":

manufacturing
software
intellectual property
accessories
packaging
research and development

NOR for:

advertising/marketing
customer service/support
insurance costs
legal costs
shipping
warehousing
regulatory approvals

etc.

I'm not sure how much "insight" this gives us (reminds me of the iTunes Music Store profit estimates that ignore R&D, support, servers, power, bandwidth, staff, rent, credit card charges, etc.) but you can compare this one segment to past product estimates I suppose.

My question is: is that cost for a single component? Because otherwise, SINCE Apple purchases millions of components AT ONCE, will get 50% price cuts or even more!!! So, WHAT ARE THE REAL TRUE MATHS???

I'm sure iSuppli is TRYING to estimate some kind of bulk discount, but we can't know the true math. We can't know what deals Apple has worked out. Maybe better than iSuppli's guesses, maybe worse.

What we CAN be sure of is that iSuppli is good at getting attention for itself :)

gnasher729
Sep 19, 2007, 11:20 AM
This is just bizarre. For some reason iSuppli tries to take any Apple product apart. So where are the numbers for the Zune? How much do the parts in a Dell computer cost? Or the parts in a 40 inch LCD TV? Has anyone ever read a report from iSupplie where any product had parts cost of more than 50% of retail price?

After paying for the parts, you pay for the people putting the parts together. You pay for testing. You pay for the players that fail the test. You pay for shipping. You pay for advertising and marketing. You pay to put the players into the shops. The shop wants some profit. Some shops have problems paying and you have trouble getting your money. Some people return the player for no good reason and it is resold as refurbished. Some people return it because it doesn't work. And before all of that, development cost, paying license fees and so on.

The numbers from iSuppli are one little piece of a very complicated equation. If you don't know all the other pieces, you can't draw any legitimate conclusions from this at all.

PhatBoyG
Sep 19, 2007, 11:26 AM
So where are the numbers for the Zune?

Well, my guess would be that MS pays around $280 for the hardware for each Zune, which they turn around and sell for $199 at a loss to "get into the market."

:)

Rocketman
Sep 19, 2007, 11:32 AM
One thing we do know is the net margin has been on an increase lately for Apple overall. This seems to try to continue the trend of incremental system wide sales margin increases thus profit margin increases.

I would be curious to see an expert analyze the packaging and distribution costs.

The "other" costs are "sunk costs" and simply are amortized over the first X number of units until breakeven is achieved, after which the gross margins approximate the iSupply figure net net.

Rocketman

hayesk
Sep 19, 2007, 11:33 AM
You can't tell net profit margin from this info, but you can tell that Apple is building these way cheap, and selling them for a healthy price on the market, so it's safe to say that a good chunk of that ~$100 markup is profit.

I disagree. Marketing, packaging, shipping, channel costs, etc. can often be more than the cost of the product itself.

slffl
Sep 19, 2007, 11:35 AM
If it doesn't account for manufacturing, software, intellectual property, research and development, accessories and packaging, then it provides absolutely NO INSIGHT as to what their profit margins are.

jellomizer
Sep 19, 2007, 11:35 AM
I would assume moving from injection molded plastic to all metal designs has a huge change in costs too. Injected Plastic with a bit of glue make the manufacturing plastic easy. Cutting Bending metal to such a high tolerance has its price too. I would love to see how these iPod are manufactured. Just the cases alone would be interesting. i've seen people make Freezers and the metal bending process is often a very manual job. And most of the parts required low tolerances The the fact every time they change the project they need to redo the manufacturing process. No wonder why Thinkpads look almost identical to the way they did 12 years ago.

MegaSignal
Sep 19, 2007, 11:38 AM
No doubt the first Nano (in this new generation) cost millions to produce; eventually, however, this product will be extremely profitable. It's only a matter of time...

Cloudane
Sep 19, 2007, 11:40 AM
I hope this doesn't mean they're now using cheap crappy components. Though with the Touch's screen problems one has to wonder. Please don't ruin your reputation for high quality, Apple!

lofight
Sep 19, 2007, 11:49 AM
I hope this doesn't mean they're now using cheap crappy components. Though with the Touch's screen problems one has to wonder. Please don't ruin your reputation for high quality, Apple!

well, the latest time apple has been having problems with screen issues and more...

shadowfax
Sep 19, 2007, 11:49 AM
I hope this doesn't mean they're now using cheap crappy components. Though with the Touch's screen problems one has to wonder. Please don't ruin your reputation for high quality, Apple!
Yeah, I am worried about that too, after the iPod Touch screen, as well as my Polka-Dot iPhone screen, and the bits about the lower-quality audio chip in the new iPods.

Mgkwho
Sep 19, 2007, 11:53 AM
It seems as if all of the recent model's screens of Apple products are all screwy. There's the iMac, the iPod touch, the iPod nano tilted screens....

-=|Mgkwho

Yateball
Sep 19, 2007, 12:01 PM
Realistically, doesn't everyone already know that companies make profit off stuff they sell?

Sure that's a big profit margin, but like it says it counts no extras such as manufacturing costs, etc.

USB Printer cables retail for $29.99 at futureshop and cost on them is $1.96.... I'd say the profit from that is significantly more. It's just no surprise to me that apple is profiting from their products.... apple wants to make money? NO WAY!?

shadowfax
Sep 19, 2007, 12:09 PM
It seems as if all of the recent model's screens of Apple products are all screwy. There's the iMac, the iPod touch, the iPod nano tilted screens....

-=|Mgkwho

Hah, I forgot to mention this 2.3 Ghz MBP that I have: the right side of the backlight is screwed up and the screen is already dimmer than it was 4 months ago when it was purchased. Of course, I will be taking it into the Genius Bar next week. I hope the screen replacement is good--other than the backlight problem, the screen is flawless--not one single dead/white pixel. I wish they could just replace the backlight...

DTphonehome
Sep 19, 2007, 12:20 PM
I disagree. Marketing, packaging, shipping, channel costs, etc. can often be more than the cost of the product itself.

I have very close family members in the consumer electronics business (mainly digital cameras), so I'm well aware of the other costs. The rest of those things matter far less than the actual cost to manufacture the device. And, the more items you produce (and import), the less those other costs figure as a percentage of each item.

ChrisA
Sep 19, 2007, 12:20 PM
Just wait until isuppli.com does this "teardown" on Leopard after it is released. Retail price will be $129 and the cost of the part, less packaging is just one blank DVD, about a five cents, I think. So Apple makes $128.95 per copy? Margins on the iPod are nothing compared to this.

But then what about those 1,000 engineers who had to be paid for two years and their office space and the people who answer the phone for Applecare and the guy in the Apple store who hands yo the box and takes your money and the person who cleans the carpet at night and so on and so on.....

tuartboy
Sep 19, 2007, 12:24 PM
Sorry, a little off topic here:

Call me blind, but where are the "rate negative" and "rate positive" links? They used to be right down with the current rating, but I haven't seen them there in a long time. Am I missing something?

CalBoy
Sep 19, 2007, 12:24 PM
Realistically, doesn't everyone already know that companies make profit off stuff they sell?

Sure that's a big profit margin, but like it says it counts no extras such as manufacturing costs, etc.

USB Printer cables retail for $29.99 at futureshop and cost on them is $1.96.... I'd say the profit from that is significantly more. It's just no surprise to me that apple is profiting from their products.... apple wants to make money? NO WAY!?

The question is how much money. From a consumer stand point, I think a healthy 10-15% profit margin after ALL costs are factored in is very reasonable. I expect the company to walk away with at least 10% after they pay for everything to get the product to me (employees, stores, shipping, production, design, the whole shabang). If a company starts to develop a higher profit margin, like the one Apple is currently enjoying, then no doubt shareholders are happy, but what about the rest of us? At times, Apple's margins on Macs can go as high as 30%. Don't you think that's a big out of line? I don't mind if Apple makes money off of me, heck, they should if I want to buy another Apple product in the future, but it can go too far.

As for these Nanos, I don't think Apple is making too much money off of them. For the 8GB model, the report indicated a materials cost of $82.85. Factor in the cost of designing, producing, shipping, packing, advertising, keeping Apple Stores with enough inventory, setting aside a few for Lemon problems, and the cost of updating iTunes (and keeping it working smoothly), we can probably guess that the cost of the Nano is probably quite a lot more than $83. My guess is that Apple probably makes a good $45 off of each 8GB model, which is healthy, but also perfectly fine. Even though the margin is above 20%, there are few MP3 players that offer a better storage/price ratio, which means that the customer still wins because they get better design, more options, and a very nice piece of software to go with it.

DTphonehome
Sep 19, 2007, 12:26 PM
Realistically, doesn't everyone already know that companies make profit off stuff they sell?

Sure that's a big profit margin, but like it says it counts no extras such as manufacturing costs, etc.

USB Printer cables retail for $29.99 at futureshop and cost on them is $1.96.... I'd say the profit from that is significantly more. It's just no surprise to me that apple is profiting from their products.... apple wants to make money? NO WAY!?

Of course everyone knows that companies make a profit on items they sell (with some exceptions, ie PS3 and Xbox 360). The question is "how much" profit are they making on each item. Since Apple doesn't release those figures (most companies don't), iSuppli is providing a rough estimate of hardware costs so you can infer the profit margin. For investors, that is VERY important information! Selling a hundred million iPods with a ten cent profit margin is far worse than selling two million with a $50-75 margin. One of the reasons Apple has had so many great quarters lately is because supply costs keep going down, while the price of Macs stays roughly the same, so Apple earns a fat margin on each machine.

EDIT: Calboy beat me to it!

CalBoy
Sep 19, 2007, 12:32 PM
Of course everyone knows that companies make a profit on items they sell (with some exceptions, ie PS3 and Xbox 360). The question is "how much" profit are they making on each item. Since Apple doesn't release those figures (most companies don't), iSuppli is providing a rough estimate of hardware costs so you can infer the profit margin. For investors, that is VERY important information! Selling a hundred million iPods with a ten cent profit margin is far worse than selling two million with a $50-75 margin. One of the reasons Apple has had so many great quarters lately is because supply costs keep going down, while the price of Macs stays roughly the same, so Apple earns a fat margin on each machine.

EDIT: Calboy beat me to it!

Yeah, but your explanation was better. Meanwhile, I wonder if I'll be able to buy AAPL before Christmas.

lofight
Sep 19, 2007, 12:36 PM
Yeah, but your explanation was better. Meanwhile, I wonder if I'll be able to buy AAPL before Christmas.

why wouldn't you be able?

bmustaf
Sep 19, 2007, 12:40 PM
These kind of studies are really interesting, but as noted, it's ridiculous to infer a profit margin from this.

There are so many drivers behind RD&E, SG&A, and non-BMC costs, everything from transport, to engineering, to warranty. Generally, those costs could be just as much if not more than the cost of the electronics.

Not really saying ANYTHING about Apple's margins.

twoodcc
Sep 19, 2007, 12:47 PM
$100 just for parts is great. All other costs will be easily taken care of when these sell like hot cakes.

they are already selling great

network23
Sep 19, 2007, 01:02 PM
Wirelessly posted (Mozilla/5.0 (iPhone; U; CPU like Mac OS X; en) AppleWebKit/420+ (KHTML, like Gecko) Version/3.0 Mobile/1C25 Safari/419.3)

Well, we know Microsoft doesn't spend much on testing.

Eidorian
Sep 19, 2007, 01:06 PM
Sorry, a little off topic here:

Call me blind, but where are the "rate negative" and "rate positive" links? They used to be right down with the current rating, but I haven't seen them there in a long time. Am I missing something?Go the main MacRumors (http://www.macrumors.com/) page and the Positive/Negative links are right below the article's text.

http://www.math.purdue.edu/~abarreno/article.png

I thought they were on the article's page (http://www.macrumors.com/2007/09/19/teardown-reveals-nano-component-changes-cost-reductions/) as well but it turns out that they aren't. Digg is though...

muledoggie
Sep 19, 2007, 01:12 PM
The question is how much money. From a consumer stand point, I think a healthy 10-15% profit margin after ALL costs are factored in is very reasonable. I expect the company to walk away with at least 10% after they pay for everything to get the product to me (employees, stores, shipping, production, design, the whole shabang). If a company starts to develop a higher profit margin, like the one Apple is currently enjoying, then no doubt shareholders are happy, but what about the rest of us? At times, Apple's margins on Macs can go as high as 30%. Don't you think that's a big out of line? I don't mind if Apple makes money off of me, heck, they should if I want to buy another Apple product in the future, but it can go too far.

As for these Nanos, I don't think Apple is making too much money off of them. For the 8GB model, the report indicated a materials cost of $82.85. Factor in the cost of designing, producing, shipping, packing, advertising, keeping Apple Stores with enough inventory, setting aside a few for Lemon problems, and the cost of updating iTunes (and keeping it working smoothly), we can probably guess that the cost of the Nano is probably quite a lot more than $83. My guess is that Apple probably makes a good $45 off of each 8GB model, which is healthy, but also perfectly fine. Even though the margin is above 20%, there are few MP3 players that offer a better storage/price ratio, which means that the customer still wins because they get better design, more options, and a very nice piece of software to go with it.

Several comments in this thread, including this one, seem to imply that there is potentially unfairness/lack of ethics in Apple's profit margin. But no one has to buy iPods. There are many alternatives. "What the market will bear" is the saying in economics. This is capitalism people.

Mule

iJawn108
Sep 19, 2007, 01:17 PM
I just want an iPhone! ;(

Cloudane
Sep 19, 2007, 01:24 PM
Ethics don't come into it (unless people get so disgusted they stop buying). Apple is a business, not a charity! As such they will do what they can to please the shareholders, and as long as customers are willing to keep buying then to heck with what they think. It's not evil, it's just how capitalism works.

Unfortunately, once a company goes from niche to mainstream, there is less emphasis on Quality. Quality is what's needed to get the company up there to that level of popularity, but once it's so popular there's no longer a need to concentrate quite as heavily on it. This is the point I'm worried that Apple has reached.

MagnusVonMagnum
Sep 19, 2007, 01:32 PM
I'd be curious to see the price breakdown on the MacPro. I wonder if Apple consumers might be a little upset to find out they could have their mid-priced tower if Apple just lowered their insanely high profit margins a bit.

No, I don't own stock in the company. I'm just a consumer that doesn't like being shafted. Watching stock owners get gleeful because they know consumers are getting soaked, which means more returns for them reminds me why I hate Capitalism in general and especially the Republican Party in the U.S., whose mandate is essentially, Let them eat cake. 25% profit is essentially the 'fair' cap of profits, IMO. Beyond that you're being ripped off, IMO.

Look at Nike. Less than $8 to make a pair of $200 shoes using essentially slave labor in China. They then ship it back to the U.S., without an protection tariffs for American labor forces who literally CANNOT compete with slave labor and then reap the massive profits. The worst part is U.S. consumers DON'T CARE. They should demand products be made in the U.S., even if at slightly higher costs (and lower profit margins) because it keeps the overall TRUE economy going (not the Dow Industrial which represents the top 10% or less). And yes that should include demanding Apple bring their Mac production lines back to the U.S. where it belongs.

This country (and the world in general save countries like China) is heading for a massive economic collapse and new great depression. The writing is on the wall. The housing market is a good indicator of how people are NOT smart (what DiTech REALLY thinks, not what they advertise). Some might say stupid people get what they deserve (and we are stupid to not demand FAIR trade, controlled government spending and better foreign policies), but that also means no compassion for one's fellow man and ultimately, countries are only as strong as their lowest common denominator. The U.S. is WEAK compared to decades ago and yet the rich call the economy an improvement because the upper 5% are getting richer while everyone else is struggling to hold on.

No, I don't blame that all on Apple or iPods or Nanos, but it just REMINDS me that Capitalism is ultimately the representation of GREED on Earth and the U.S. is the simultaneously the worst offender and the hardest hit by the lower end effects of it. Competition is one thing. Companies like M$ seeking to DESTROY competition by any means possible or ones like Apple seeking to control every aspect of their computers, phones and other products means it's not about friendly competition but economic warfare. WalMart, for example is about destroying competition, not offering a cheaper alternative. Everything they do is to try and drive other companies and small businesses OUT of business. Foreign companies regularly dump steel and other raw materials below market cost on this country to destroy internal US competition and our laws often just let it happen. Those aren't competitive tactics! They're designed to destroy infrastructure here so they can have a monopoly on said items in the future.

So when I say FAIR trade, I mean tit for tat, not maximizing the shareholders profit or have a 1:10 ratio of outgoing versus incoming. Why does the U.S. even trade with Communist China while holding embargos on Cuba? Is Cuba more of a threat in any aspect than China with its nuclear weapons? Of course not. We deal with China because they represent almost unlimited slave labor and cheaper manufacturing so the top 5% can get rich while the working man loses his job because minimum wage can't compete with pennies on the dollar. And then the rich say that's too bad. Those people should find new jobs. We sell out our industry; we sell out our entire country so a select few can drive a Lamborghini and fly in private Lear jets while we the middle or lower class struggle to make ends meet as prices rise faster than inflation and wages.

So yes, it really bothers me to see gleeful greed over Corporate profits. But then I KNOW it doesn't bother said people one bit. Screw everyone else. Let them eat cake. Watch where it leads us in the end. People who learn nothing from history are doomed to repeat it.

alljunks
Sep 19, 2007, 01:48 PM
they profit should be more than that!!!!!!!

SMM
Sep 19, 2007, 02:06 PM
I'd be curious to see the price breakdown on the MacPro. I wonder if Apple consumers might be a little upset to find out they could have their mid-priced tower if Apple just lowered their insanely high profit margins a bit.

No, I don't own stock in the company. I'm just a consumer that doesn't like being shafted. Watching stock owners get gleeful because they know consumers are getting soaked, which means more returns for them reminds me why I hate Capitalism in general and especially the Republican Party in the U.S., whose mandate is essentially, Let them eat cake. 25% profit is essentially the 'fair' cap of profits, IMO. Beyond that you're being ripped off, IMO.

Look at Nike. Less than $8 to make a pair of $200 shoes using essentially slave labor in China. They then ship it back to the U.S., without an protection tariffs for American labor forces who literally CANNOT compete with slave labor and then reap the massive profits. The worst part is U.S. consumers DON'T CARE. They should demand products be made in the U.S., even if at slightly higher costs (and lower profit margins) because it keeps the overall TRUE economy going (not the Dow Industrial which represents the top 10% or less). And yes that should include demanding Apple bring their Mac production lines back to the U.S. where it belongs.

This country (and the world in general save countries like China) is heading for a massive economic collapse and new great depression. The writing is on the wall. The housing market is a good indicator of how people are NOT smart (what DiTech REALLY thinks, not what they advertise). Some might say stupid people get what they deserve (and we are stupid to not demand FAIR trade, controlled government spending and better foreign policies), but that also means no compassion for one's fellow man and ultimately, countries are only as strong as their lowest common denominator. The U.S. is WEAK compared to decades ago and yet the rich call the economy an improvement because the upper 5% are getting richer while everyone else is struggling to hold on.

No, I don't blame that all on Apple or iPods or Nanos, but it just REMINDS me that Capitalism is ultimately the representation of GREED on Earth and the U.S. is the simultaneously the worst offender and the hardest hit by the lower end effects of it. Competition is one thing. Companies like M$ seeking to DESTROY competition by any means possible or ones like Apple seeking to control every aspect of their computers, phones and other products means it's not about friendly competition but economic warfare. WalMart, for example is about destroying competition, not offering a cheaper alternative. Everything they do is to try and drive other companies and small businesses OUT of business. Foreign companies regularly dump steel and other raw materials below market cost on this country to destroy internal US competition and our laws often just let it happen. Those aren't competitive tactics! They're designed to destroy infrastructure here so they can have a monopoly on said items in the future.

So when I say FAIR trade, I mean tit for tat, not maximizing the shareholders profit or have a 1:10 ratio of outgoing versus incoming. Why does the U.S. even trade with Communist China while holding embargos on Cuba? Is Cuba more of a threat in any aspect than China with its nuclear weapons? Of course not. We deal with China because they represent almost unlimited slave labor and cheaper manufacturing so the top 5% can get rich while the working man loses his job because minimum wage can't compete with pennies on the dollar. And then the rich say that's too bad. Those people should find new jobs. We sell out our industry; we sell out our entire country so a select few can drive a Lamborghini and fly in private Lear jets while we the middle or lower class struggle to make ends meet as prices rise faster than inflation and wages.

So yes, it really bothers me to see gleeful greed over Corporate profits. But then I KNOW it doesn't bother said people one bit. Screw everyone else. Let them eat cake. Watch where it leads us in the end. People who learn nothing from history are doomed to repeat it.

Can I quote you on the, Karl?

ryanw
Sep 19, 2007, 02:14 PM
Every time, people forget to include the marketing cost in the product. How many times have you seen an iPod Nano commercial on TV? Do you have any idea how much a single commercial costs to have aired nationally?

tuartboy
Sep 19, 2007, 02:37 PM
Go the main MacRumors (http://www.macrumors.com/) page and the Positive/Negative links are right below the article's text.

http://www.math.purdue.edu/~abarreno/article.png

I thought they were on the article's page (http://www.macrumors.com/2007/09/19/teardown-reveals-nano-component-changes-cost-reductions/) as well but it turns out that they aren't. Digg is though...

Thanks. I have been going to the direct pages right from the RSS feed and I thought I was going crazy.

nagromme
Sep 19, 2007, 02:45 PM
I have very close family members in the consumer electronics business (mainly digital cameras), so I'm well aware of the other costs. The rest of those things matter far less than the actual cost to manufacture the device.

If "those other things" include the R&D to actually create the product, then that will vary but it's a BIG expense.

And to remind people: the cost to manufacture the device (even without those other things) is NOT just the cost of the parts. The parts also have to be shipped to the factory, with machines and employees and power, where the parts are transformed into a product. In other words, even if iSuppli's guesses were correct, we still wouldn't know the cost to manufacture.

crazy.fool
Sep 19, 2007, 03:47 PM
i expect the nanos are making a healthy profit the company i work for bought the old 2gb ipod nanos in for 55 each and sold them on for the rrp of 99 apple must have still been making a fair profit on the nanos at 55 just think what they made on the nanos they sold through their own stores at 99

the new ipods i expect will have very similare product margins taking into account drop in prices of flash memory but the increased memory size in each unit.

shawnce
Sep 19, 2007, 03:55 PM
I'd be curious to see the price breakdown on the MacPro. I wonder if Apple consumers might be a little upset to find out they could have their mid-priced tower if Apple just lowered their insanely high profit margins a bit. The Mac Pro is a competitively priced for a workstation class system... compare one to a workstation from HP or Dell. Don't forget it is a Xeon system (higher priced processor, chipset, and memory then your typical desktop system).

You likely are looking at margins in the low 30s (30%) for the top end MacPro (given the long run of the current Mac Pro model margins have of course risen so they could be higher then that now).

greg555
Sep 19, 2007, 04:13 PM
This is just bizarre. For some reason iSuppli tries to take any Apple product apart. So where are the numbers for the Zune? How much do the parts in a Dell computer cost? Or the parts in a 40 inch LCD TV?

iSuppli does the Apple teardowns to get free publicity. Their main business I would guess is teardowns of competitor products that only the paying company sees. The previous company I worked for considered using iSuppli to get BOM (Bill of Materials) costs for a competitor's box.

Greg

rhpenguin
Sep 19, 2007, 05:08 PM
I hope this doesn't mean they're now using cheap crappy components. Though with the Touch's screen problems one has to wonder. Please don't ruin your reputation for high quality, Apple!

Reputation for high quality¿? My first Apple II caught fire on my desk. Lets go back over even just ten years of Apple blunders.

Rev A B&W PowerMac ATA controller fiasco
G3/G4 iBook Logicboard/GPU issues (this problem was ongoing from 2000 till the last G4 iBook rolled off the line.)
Short battery life on 3G iPods (and the lawsuit that ensued...)
Powerbook batteries that blow up.
Apple Cinema (alu) displays with yellowing at original release
The C2D notebooks that would heat up till they shut down due to crappy build quality.

I can keep going, but I think you get the point.

Bern
Sep 19, 2007, 05:41 PM
So Apple shouldn't make a profit to enable them to invest in the development of future products? :rolleyes:

nagromme
Sep 19, 2007, 05:47 PM
Reputation for high quality¿?

Yes--as evidenced by statistically low failure rates.

Apple HAS had hardware failures--like the ones you list--and yet they still have a better track record than every other PC maker. (See Consumer Reports for stats.)

And over the years, every time some Apple product experiences failures--however rare--people moan that Apple has gone cheap and lost their reputation :)

Cloudane
Sep 19, 2007, 06:03 PM
Fair enough!

I'm just worried, that's all. If the screen issue is a defect and they're willing to replace it (assuming I get a dodgy one) then all's well.

Have to admit, I had a Google for "apple quality" and people were whinging about "falling quality standards" back in the G3 days. Yet my G4 Powerbook has been more than reasonable, and I heard little other than good things around that era. Yes the metal paint is wearing off on the wrist rest area, the first HDD died (HDD's often die in about 2 years nowadays, that's why I like the Flash idea) and there is dust in between the LCD layers at the bottom of the screen. So what. I've been using the thing every day for almost 4 years, it's served me very well.

These screen problems are a huuuuge quality foul-up, just got to hope the *overall* quality is still good.

aapl.jlo
Sep 19, 2007, 07:01 PM
I don't blame them for making the iPods in China, after all, if we want a good rate on the iPod products, we can't make them in America for such a low price-I wish we could-but,we can't. There is nowhere in America that you can pay your workers a couple of bucks for a ten hour shift.
Do I feel guilty that I am buying products from Chinese labor factories...well, sort of, but that's how their government works, or doesn't (in the world of Communism)


Good job Steve-this is the best line-up yet of the iPods

:apple:

rhpenguin
Sep 19, 2007, 07:32 PM
Yes--as evidenced by statistically low failure rates.

Apple HAS had hardware failures--like the ones you list--and yet they still have a better track record than every other PC maker. (See Consumer Reports for stats.)

And over the years, every time some Apple product experiences failures--however rare--people moan that Apple has gone cheap and lost their reputation :)

Mabye I'm a a little biased as every Apple product I've owned has failed miserably. With the exception of OS X, I run it happily..

ChipperVW
Sep 19, 2007, 08:04 PM
I don't think this is any real insight into the profits- but maybe if ALL of the information was available for production costs, etc. from previous model iPods it could be compared to this.

Either way, when Apple sells MILLIONS of these- whatever the profit is per iPod you can multiply that times __Million.

CalBoy
Sep 19, 2007, 08:31 PM
why wouldn't you be able?

Well, nothing really, I just know if I should expect a split. If there is a split coming, I'd like to buy before the split because splits have a way of making the price go up even more. Then again, we've been hearing rumors of a split for months.

Several comments in this thread, including this one, seem to imply that there is potentially unfairness/lack of ethics in Apple's profit margin. But no one has to buy iPods. There are many alternatives. "What the market will bear" is the saying in economics. This is capitalism people.

Mule

Capitalism is great, but gouging is not. The iPod isn't a necessity, but that doesn't mean that it shouldn't be any less subjected to fairness and reasonable margins. Technically, you can live without cable, high speed internet, and even a computer. Nonetheless, you expect to get a fair market price on the product. Apple is able to have high margins and keep the price competitive because it is a large scale consumer of several critical parts, which other companies can't compete with. For example, Apple is the world's largest consumer of Flash. This gives Apple a better price than other companies. However, instead of passing even a small amount of these savings onto the consumer, Apple keeps the money for itself. Now, it is Apple's freedom to do this, and it is my freedom to not buy an iPod. Just like you are free to not buy gas and take the bus. We can complain about excessive margins without attacking capitalism. In fact, consumers being angry about prices is a critical component of capitalism. Without changes in demand, there will be no change in supply or price. I just think it works out better when consumers voice their concerns, and the company adjusts accordingly; I think this works better than a large group of people deciding to boycott the company.

By the way, ethics and business are two different discussions. It can be unethical for a business to charge too much, but it could be a great business strategy. Just look at Vista;)

Now, I'd like to emphasize that I don't think Apple gouges. However, if left unchecked, Apple could easily become a company which gouges its customers. It's a very fine line.

MattInOz
Sep 19, 2007, 10:12 PM
I'd be curious to see the price breakdown on the MacPro. I wonder if Apple consumers might be a little upset to find out they could have their mid-priced tower if Apple just lowered their insanely high profit margins a bit.

No, I don't own stock in the company. I'm just a consumer that doesn't like being shafted. Watching stock owners get gleeful because they know consumers are getting soaked, which means more returns for them reminds me why I hate Capitalism in general and especially the Republican Party in the U.S., whose mandate is essentially, Let them eat cake. 25% profit is essentially the 'fair' cap of profits, IMO. Beyond that you're being ripped off, IMO.

Look at Nike. Less than $8 to make a pair of $200 shoes using essentially slave labor in China. They then ship it back to the U.S., without an protection tariffs for American labor forces who literally CANNOT compete with slave labor and then reap the massive profits. The worst part is U.S. consumers DON'T CARE. They should demand products be made in the U.S., even if at slightly higher costs (and lower profit margins) because it keeps the overall TRUE economy going (not the Dow Industrial which represents the top 10% or less). And yes that should include demanding Apple bring their Mac production lines back to the U.S. where it belongs.

This country (and the world in general save countries like China) is heading for a massive economic collapse and new great depression. The writing is on the wall. The housing market is a good indicator of how people are NOT smart (what DiTech REALLY thinks, not what they advertise). Some might say stupid people get what they deserve (and we are stupid to not demand FAIR trade, controlled government spending and better foreign policies), but that also means no compassion for one's fellow man and ultimately, countries are only as strong as their lowest common denominator. The U.S. is WEAK compared to decades ago and yet the rich call the economy an improvement because the upper 5% are getting richer while everyone else is struggling to hold on.

No, I don't blame that all on Apple or iPods or Nanos, but it just REMINDS me that Capitalism is ultimately the representation of GREED on Earth and the U.S. is the simultaneously the worst offender and the hardest hit by the lower end effects of it. Competition is one thing. Companies like M$ seeking to DESTROY competition by any means possible or ones like Apple seeking to control every aspect of their computers, phones and other products means it's not about friendly competition but economic warfare. WalMart, for example is about destroying competition, not offering a cheaper alternative. Everything they do is to try and drive other companies and small businesses OUT of business. Foreign companies regularly dump steel and other raw materials below market cost on this country to destroy internal US competition and our laws often just let it happen. Those aren't competitive tactics! They're designed to destroy infrastructure here so they can have a monopoly on said items in the future.

So when I say FAIR trade, I mean tit for tat, not maximizing the shareholders profit or have a 1:10 ratio of outgoing versus incoming. Why does the U.S. even trade with Communist China while holding embargos on Cuba? Is Cuba more of a threat in any aspect than China with its nuclear weapons? Of course not. We deal with China because they represent almost unlimited slave labor and cheaper manufacturing so the top 5% can get rich while the working man loses his job because minimum wage can't compete with pennies on the dollar. And then the rich say that's too bad. Those people should find new jobs. We sell out our industry; we sell out our entire country so a select few can drive a Lamborghini and fly in private Lear jets while we the middle or lower class struggle to make ends meet as prices rise faster than inflation and wages.

So yes, it really bothers me to see gleeful greed over Corporate profits. But then I KNOW it doesn't bother said people one bit. Screw everyone else. Let them eat cake. Watch where it leads us in the end. People who learn nothing from history are doomed to repeat it.

"designed in California"
While I agree many companies of western countries sell there manual labour short by shipping production overseas. These sorts of teardowns don't tell the whole story when they talk about margins it's not like that margin is all profit as covered extensively already in the thread.

It's not all the profit made is on such as sale is even Apple's.
The retail markup on such a device maybe in the order of 30% and goes for the most part to local jobs in sales + some profit.
Apple of coarse out source more than manufacturing, Advertising for one using of coarse their favored firm in LA.
The Parts have R&D costs which put mores jobs in places like the U.S.

All these jobs putting bread on average peoples tables.
So the only two guys buying fancy planes out of produces like the nano are SteveJ and the guy who owns the Bakery.

dukebound85
Sep 19, 2007, 10:33 PM
to all that complain. buy the parts and build the product yourself.

tveric
Sep 19, 2007, 11:12 PM
However, if left unchecked, Apple could easily become a company which gouges its customers. It's a very fine line.

Oh yeah, because the cost of an building an ipod, to Apple, is just the sum of the cost of the parts. There's no R&D, manufacturing costs, shipping costs, and marketing costs. So if they're left unchecked, whatever that means in your bizarre logic, they might "gouge" you in the future when you want an ipod.

Maybe you need a refresher on the definition of price gouging.

Price gouging may be charged when a supplier of essential goods or services sharply raises the prices asked in anticipation of or during a civil emergency, or when it cancels or dishonors contracts in order to take advantage of an increase in prices related to such an emergency.

So if that hurricane hits and you HAVE to have an ipod to survive, and Apple is left unchecked, they will charge you QUADRUPLE what the sum of the parts cost them! The horror.

You're a friggin genius.

CalBoy
Sep 19, 2007, 11:34 PM
Oh yeah, because the cost of an building an ipod, to Apple, is just the sum of the cost of the parts. There's no R&D, manufacturing costs, shipping costs, and marketing costs. So if they're left unchecked, whatever that means in your bizarre logic, they might "gouge" you in the future when you want an ipod.

Had you read my first post, you'll find that I did take into account the all possible costs of production, including maintaining retail stores, marketing costs, manufacture, shipping, R&D, etc. Even with all this, Apple's margin on the Nano is probably above 20%, which is a very, very healthy number.


Maybe you need a refresher on the definition of price gouging.

Price gouging may be charged when a supplier of essential goods or services sharply raises the prices asked in anticipation of or during a civil emergency, or when it cancels or dishonors contracts in order to take advantage of an increase in prices related to such an emergency.

So if that hurricane hits and you HAVE to have an ipod to survive, and Apple is left unchecked, they will charge you QUADRUPLE what the sum of the parts cost them! The horror.

That definition of price gouging is the legal term. We're not talking about the legal perspective, we're talking about the average consumer perspective. And, had you bothered to read my entire post, you'll see that I didn't say that Apple was price gouging, but that the potential is there. If the iPod is able to smash all other MP3 players this Christmas, and the only choice is an Apple product, the stage is set for a possible gouge to occur, because, if you look closely at the meaning of price gouging, it clearly indicates that the supplier is increasing the price because no other alternative is present. Again, and read this this time, Apple is not doing this. However, if the margin on the iPod begins to cross over into the 40, 50, or 60th percentile, I think we can say that Apple is over charging for its product, and if there are no other *viable* competitors (of which there are only a handful at the moment, and even they aren't doing so well), then guess what? We have price gouging.

Anyways, the point is, the nano costs less to produce now than it did before, and Apple has provided an increase in capacity to its customers(for the same price), so we don't need to be arguing over a null point.


You're a friggin genius.
Check your attitude at the door. We are having a discussion; there's no need for sarcasm.

tveric
Sep 20, 2007, 12:17 AM
However, if the margin on the iPod begins to cross over into the 40, 50, or 60th percentile, I think we can say that Apple is over charging for its product, and if there are no other *viable* competitors (of which there are only a handful at the moment, and even they aren't doing so well), then guess what? We have price gouging.

Quit while you're behind, this point makes even less sense than everything you said previously.

First off, you have no idea, and will never have any idea, of what the margins on the ipod are, because you don't know what their R&D, manufacturing, shipping and marketing costs are, per ipod. Even if you did, and Apple was charging five times what it cost them to make it, guess what? You don't have to buy it, and there are competitors that you can buy from. The reason that they're "not doing so well", as you ambiguously put it, is because those products SUCK, compared to the ipod, not because Apple has some sort of imaginary partial monopoly over the mp3 player business.

How is Apple ever going to have no competitors in the mp3 player business? Any tech company is free to create one and sell it, at any time. Applying the principle of price gouging to ipods, legal definition or consumer definition (and "consumer definition" sounds a lot like whining customers saying "hey I paid $600 for this iphone 2 months ago waaaah!"), is ridiculous. You don't like the price of the ipod, or how much money Apple is making on each ipod? No problem, DON'T BUY ONE. Oh, you NEED an mp3 player? (you don't, by the way) Fine, buy a cheaper one from a competitor.

And stop crying. Or move to a truly socialist state where prices get fixed by government and the economy eventually gets run into the ground. I'd prefer you did the second one, but I have a feeling you'll do neither.

lofight
Sep 20, 2007, 01:39 AM
Well, nothing really, I just know if I should expect a split. If there is a split coming, I'd like to buy before the split because splits have a way of making the price go up even more. Then again, we've been hearing rumors of a split for months.

Is apple maybe gonna split??

koobcamuk
Sep 20, 2007, 04:25 AM
USB Printer cables retail for $29.99 at futureshop and cost on them is $1.96.... I'd say the profit from that is significantly more. It's just no surprise to me that apple is profiting from their products.... apple wants to make money? NO WAY!?

err...
http://cgi.ebay.com/USB-2-0-Printer-Scanner-Device-Cable-A-B-PC-MAC-HP-CBC9_W0QQitemZ150162410289QQihZ005QQcategoryZ51286QQssPageNameZWDVWQQrdZ1QQcmdZViewItem

Why would you buy one for $29.99?

I don't blame them for making the iPods in China, after all, if we want a good rate on the iPod products, we can't make them in America for such a low price-I wish we could-but,we can't. There is nowhere in America that you can pay your workers a couple of bucks for a ten hour shift.
Do I feel guilty that I am buying products from Chinese labor factories...well, sort of, but that's how their government works, or doesn't (in the world of Communism)[/CENTER]

Why don't they make them in London? Then a shuffle might be something like $400 a piece...

MagnusVonMagnum
Sep 20, 2007, 01:12 PM
I don't blame them for making the iPods in China, after all, if we want a good rate on the iPod products, we can't make them in America for such a low price-I wish we could-but,we can't. There is nowhere in America that you can pay your workers a couple of bucks for a ten hour shift.
Do I feel guilty that I am buying products from Chinese labor factories...well, sort of, but that's how their government works, or doesn't (in the world of Communism)


Good job Steve-this is the best line-up yet of the iPods

:apple:


Well, that's what I call typical short-sightedness. It's the same kind of thinking that lead to the U.S. handing the VCR to Japan. They couldn't see how to make a profit the next quarter on the thing so they gladly got rid of it and Japan ruled the market for the next two decades until DVD took off.

I usually wear New Balance shoes. I started buying them because they were the last U.S. maker of tennis shoes. They averaged $45 a pair while Nike were more like $100-200 a pair even though New Balance paid a decent wage in the USA while Nike paid slave rates in China. I always wondered how it was that New Balance managed to make shoes in the U.S. AND make a profit while paying U.S. workers while Nike gouged the market, paying a couple of million to celebrities to push sweat shop sneakers.

Now New Balance has moved to China in the past few years like everyone else. The shoes cost the same as they always have. You tell me where all those slave labor saving have gone. They sure as hell haven't been passed onto the consumer!!!! GREED GREED GREED GREED GREED.

It's a total load of bollocks that goods can't be manufactured in the U.S. at REASONABLE prices. It's NOT cheap to move factories over to China and it's definitely not cheap to ship them across the ocean. Your savings are eroded by those factors and most of the savings are not passed onto consumers. U.S. goods might cost 10-20% more than Chinese goods in the end (if that even given the way corporate greed keeps ALL the profit and doesn't pass savings on), but more importantly, keeping jobs in the U.S. means the country stays in good health. Look what has happened over the Bush years here. Good jobs leave and minimum wage (or close to it) job replace them. The country's debt has never been higher. The trade deficit has never been higher. How in the world can anyone say that's a good thing? Can you see past the DOW average or the next quarter what is going to happen in a few years to this country???? I guess not. We're selling the country's life blood off for to save a few cents on the dollar. What good are those savings if you lose your $50,000 a year job and have to take an $11,000 a year one because the $50,000 one was outsourced?

I'll say it again. People are STUPID to let this stuff happen.

That's just the way it is in China? Developed countries should not interact with undeveloped ones on the same level (even Star Trek had its Prime Directive for a REASON) because they are NOT on the same level. It undercuts the developed country as a whole (job losses) and the undeveloped countries propagate out of control, sucking up all the world's resources.

When gas prices in the U.S. top $6 a gallon people might start to ask themselves why it keeps skyrocketing. CHINA (and their insatiable need for ever more oil to keep up with their modernizing industrial base) is why it keeps skyrocketing and we're making it happen many times faster than it ever should have happened.

Like I said, people need to look past the next quarter! Saving a few bucks in the short term leads to massive losses in the future. The rich don't care because ALL those changes MOSTLY benefits them, not YOU. They brain wash you into thinking it can't be made here for reasonable prices and that just isn't true.

There's a big difference beween FREE trade agreements and FAIR trade agreements. Until people understand the differences, we'll keep selling this country out by the dollar (and the same applies to other countries as well).

CalBoy
Sep 20, 2007, 08:18 PM
First off, you have no idea, and will never have any idea, of what the margins on the ipod are, because you don't know what their R&D, manufacturing, shipping and marketing costs are, per ipod. Even if you did, and Apple was charging five times what it cost them to make it, guess what? You don't have to buy it, and there are competitors that you can buy from. The reason that they're "not doing so well", as you ambiguously put it, is because those products SUCK, compared to the ipod, not because Apple has some sort of imaginary partial monopoly over the mp3 player business.

Well, this gives me some idea: Apple's 3rd Quarter profits (http://www.apple.com/pr/library/2007/07/25results.html).
Granted, I don't have the specific values for each product, but a gross margin of 36% sounds pretty good to me. If that's the average, I think we can safely assume that the new nano, which costs less to produce than the older one, has around a 20% margin AT THE LEAST.


How is Apple ever going to have no competitors in the mp3 player business? Any tech company is free to create one and sell it, at any time. Applying the principle of price gouging to ipods, legal definition or consumer definition (and "consumer definition" sounds a lot like whining customers saying "hey I paid $600 for this iphone 2 months ago waaaah!"), is ridiculous. You don't like the price of the ipod, or how much money Apple is making on each ipod? No problem, DON'T BUY ONE. Oh, you NEED an mp3 player? (you don't, by the way) Fine, buy a cheaper one from a competitor.
Ok, this is my last word about price gouging. If you had been paying attention, you would have seen that I stated, three times, that Apple isn't price gouging. What I said was, the potential for price gouging is present, though I doubt it will materialize.

pricing above the market price when no alternative retailer is available
This means, that if the iPod were to become the only MP3 player in the future, and Apple decided that this meant they could charge $800 for one, that Apple would be guilty of price gouging. Do I think this is going to happen? No. There is enough competition where this isn't likely to happen. But, people have thought that about other industries in the past; oil (how do you think Rockefeller made his money?), phones (remember when all there was was ATT?), and dozens of other industries of the past have been able to get away with similar actions.


And stop crying. Or move to a truly socialist state where prices get fixed by government and the economy eventually gets run into the ground. I'd prefer you did the second one, but I have a feeling you'll do neither.
Your laissez-faire attitude is fine, in fact, I like it when government stays out of business, but I don't want to be a stoic spectator; if something begins to go wrong, I would like to be able to help correct it. Now, that means, that as a consumer, I have a duty to challenge anything which I percieve to be a threat to my position in the market economy; just like Walmart challenges unions or healthcare reform;). If that isn't playing the game of economics to you, then you need a refresher course. It's our duty as consumers to look after our interests, not corporate interests. You may think I'm whining, or "crying" but this is part of the process which keeps certain prices low in our economy, and certain industries in check.
And, if you think that complaining about economics (which I never did by the way) is unpatriotic, then go and read that tiny little thing called the First Amendment. You'll find all kinds of interesting stuff in there. Seems the framers thought it was just mildly important.