Apple Watch Sport Component Costs Estimated at $83.70, Which Won't Sit Well With Tim Cook

[MacRumors]

IHS iSuppli often tears down devices to estimate component costs, and today, the research firm released its report on the Apple Watch, suggesting it has the lowest hardware costs compared to retail price of any Apple product IHS has researched.

The 38mm Apple Watch Sport dissected by IHS was estimated to cost $81.20 when broken down by component. In IHS' estimation, the most expensive component in the Apple Watch is the display (including OLED and Ion-X cover glass), priced at $20.50, followed by the processor on the S1 chip, priced at $10.20. In addition to component costs, IHS adds an estimated $2.50 for manufacturing costs, bringing its total estimate for the Apple Watch's raw cost to $83.70. IHS did not give similar cost breakdowns for the stainless steel or gold Apple Watches, both of which have sapphire cover displays and different casing materials.

At $83.70, IHS says the hardware costs of the Apple Watch are "only about 24 percent" of the manufacturer's suggested retail price of $349, while other Apple product component costs have ranged from 29 to 38 percent, giving the Apple Watch a higher potential profit margin. During Apple's most recent earnings call, the company announced that Apple Watch profit margins would actually be slimmer than other Apple products, at least during its first quarter of availability.

"It is fairly typical for a first-generation product rollout to have a higher retail price versus hardware cost," said Kevin Keller, senior principal analyst-materials and cost benchmarking services for IHS Technology. "While retail prices always tend to decrease over time, the ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple's bottom line if sales match the interest the Apple Watch has generated."

IHS' component cost estimations come just three days after Apple CEO Tim Cook declared that component cost breakdowns on Apple products are inaccurate. "There are cost breakdowns around our products that are much different than the reality," he said. "I've never seen one that is anywhere close to being accurate."

While these types of cost breakdowns look at the potential expense related to each individual component in a device, they do not take into account other possible expenses related to product creation like research and development, advertising, software, or distribution, making them of little practical use for estimating profit margin.

IHS iSuppli's report also looks at each component in the Apple Watch, many of which have already been well explored in other teardowns from iFixit and Chipworks. It doesn't offer much new information, but it does give an interesting look at the S1 chip in the Apple Watch, and a special coating added for electromagnetic shielding.

"To provide electromagnetic shielding, the encapsulated PCB assembly is further treated with a metalized coating deposited over the surface," Keller added. "This shielding process is used in place of conventional stamped sheet metal shielding, saving a significant amount of space, as well as cutting down slightly on weight."

IHS confirms that the Apple Watch Sport includes 8GB of Toshiba flash memory, 512MB of Micron RAM, and components manufactured by Broadcom, STMicro, Maxim, NXP, and Analog Devices. It also highlights the use of an accelerometer/gyroscope from STMicro instead of Invensense, something that was also pointed out by Chipworks last Friday.

At this point, we've had a very thorough look at the 38mm Apple Watch Sport, but we have yet to see into a 42mm device to see the differences between the two models. We haven't seen a detailed teardown of a stainless steel Apple Watch or an Apple Watch Edition, but iFixit took a quick look inside a stainless steel version and found its internals to be the same as the Apple Watch Sport.

Article Link: Apple Watch Sport Component Costs Estimated at $83.70, Which Won't Sit Well With Tim Cook

 

[Locoboof]

Wow! That's it?! Are you serious?

 

[tevion5]

To the people who think the watch is over priced as a result of this...try selling bags of cement and piles of wood for the same price as a fully assembled house of identical mass.

 

[Shayanftw]

'You're calculating it wrong'

 

[vodouman]

Before everyone goes nuts, remember R&D costs need to be recouped.

 

[Patriot24]

That. Is. Not. The. Cost. Of. The. Watch. Don't. Even. Start. R&D. Marketing. Advertising. On. And. On. Stop.

 

[BMcCoy]

I wonder if that changes how people feel about handing over hundreds, even thousands of dollars for this thing...

You've got to hand it to Apple though... what an incredible company.. to make products with such an insane profit margin, but thanks to perhaps the best marketing and sales strategy of any company in the world, they will sell millions of them.

 

[hexor]

Wow! That's it?! Are you serious?


Image

These breakdown costs are nearly worthless.. people also get wrong idea from these because of the huge amount of overhead expenses that are not figured in..

 

[thadoggfather]

Tim Cook (prematurely) saying cost breakdowns have been inaccurate historically:

 

[applesith]

Here come the people who know better and want to tell apple how to run their business. And dictate what their profit should be.

Go start your own company and make stuff with a smaller margin out of the kindness of your heart and let me know how it turns out.

 

[uid15]

Custom parts and assemblies are not factored in, conveniently for the report. "iSuppli" is KNOWN for inaccuracy and huge generalisations.

How about tooling and custom parts, then? Doh!

 

[silvetti]

These things never factor in R&D costs so pretty much useless.

 

[WordMasterRice]

That. Is. Not. The. Cost. Of. The. Watch. Don't. Even. Start. R&D. Marketing. Advertising. On. And. On. Stop.

It is the cost of a watch. It isn't the cost of the entire investment.

 

[gugy]

I wonder if that changes how people feel about handing over hundreds, even thousands of dollars for this thing...

You've got to hand it to Apple though... what an incredible company.. to make products with such an insane profit margin, but thanks to perhaps the best marketing and sales strategy of any company in the world, they will sell millions of them.

I doubt, people who want to buy it won't care how much Apple is profiting on it.

 

[RDeckard]

Oh boy, here we go again with these stupid iSuppli estimates (and whining comments to come)...

When you go to a great steak restaurant, do you complain to your server that you can buy all the meat and veggies for your dinner for less than $20 at the grocery store???

Didn't think so.

 

[Derekuda]

I really hope you apple watch people feel like fools now. That's pretty much rape at those profit margins. ..... Those poor wallets. Won't someone please think of the wallets?

 

[NT1440]

Uh, how in the hell does the ENTIRE display somehow cost on $20?

The glass itself is being formed into a very difficult to manufacture curve with rounded edges...that precision ain't cheap...


These guys estimates are full of ****.

That isn't to say Apple isn't making a healthy margin...but this seems to be just reading off a spec list and looking at generic pricing.

 

[Haxley]

$83 worth of components in the WATCH? You're embarrassing yourself IHS iSuppli.

 

[tevion5]

Before everyone goes nuts, remember R&D costs need to be recouped.

...and software, and transport, and marketing, and infrastructure, and overheads , and licensing, and...

 

[TEBnewyork]

I wonder if that changes how people feel about handing over hundreds, even thousands of dollars for this thing...

You've got to hand it to Apple though... what an incredible company.. to make products with such an insane profit margin, but thanks to perhaps the best marketing and sales strategy of any company in the world, they will sell millions of them.

I feel that I could never design or build it myself so the component costs are irrelevant if the overall product is compelling and something I desire.

It doesn't take a lot of brainpower for someone to understand that the components may be cheap the the thousands upon thousands of hours of software development are needed to do what it does.

 

[DEMinSoCAL]

To the people who think the watch is over priced as a result of this...try selling bags of cement and piles of wood for the same price as a fully assembled house of identical mass.

Yes, I can see how Chinese labor slave-wages can constitute the other 76%, compared to American housing construction / Union labor jobs. Good comparison.

 

[applesith]

I really hope you apple watch people feel like fools now. That's pretty much rape at those profit margins. ..... Those poor wallets. Won't someone please think of the wallets?

That's pretty much a disgusting comment. Buying an apple watch involves giving consent.

 

[Locoboof]

These breakdown costs are nearly worthless.. people also get wrong idea from these because of the huge amount of overhead expenses that are not figured in..

Could you please stop talking sensible and just let me overreact?!

I know....there's so many things to factor in. I just like keeping things lighthearted.

 

[oneMadRssn]

To the people who think the watch is over priced as a result of this...try selling bags of cement and piles of wood for the same price as a fully assembled house of identical mass.

I get where you're going, but I think you have that backwards. I think you meant to say: Try buying an assembled house for the price of bags of cement and piles of wood of identical mass.

The way you had doesn't make sense. Why would someone overpay for assembled components?

 

[macjonny1]

I wonder if that changes how people feel about handing over hundreds, even thousands of dollars for this thing...

You've got to hand it to Apple though... what an incredible company.. to make products with such an insane profit margin, but thanks to perhaps the best marketing and sales strategy of any company in the world, they will sell millions of them.

Your comment, in short, shows the ignorance of the average person thinking that the cost of the individual components equals the cost of the assembled product fully developed. Unfortunately nothing is going to fix the stupidity of the average person out there.