Teardown Reveals Nano Component Changes, Cost Reductions

[MacRumors]

Research firm iSuppli has torn down the latest iteration of the iPod nano 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

[Eidorian]

Good ol' iSuppli.

Time to wait for a refurb!

[tschull]

"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

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]

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.

Originally Posted by tschull

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]

$100 just for parts is great. All other costs will be easily taken care of when these sell like hot cakes.

[Marx55]

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]

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

[lofight]

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]

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]

Originally Posted by Marx55

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]

I hear the markup on ALL MP3 players is 100%, so the 4Gig wholesale is $75 and the 8Gig is $100...

[nagromme]

"...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.

Originally Posted by Marx55

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]

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]

Originally Posted by gnasher729

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]

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]

Originally Posted by DTphonehome

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]

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]

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]

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]

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]

Originally Posted by Cloudane

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]

Originally Posted by Cloudane

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]

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]

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]

Originally Posted by Mgkwho

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...