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

[baryon]

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.

Exactly. You're not paying for the watch, you're paying for all the people who worked on making it possible, for Johnny Ive to make 1000 iterations of the design before finding the right one, for the software development and the years of thinking about what will and won't work. An object like this is more similar to software in a sense: it's not the individual copies that somehow contain its value, but rather the effort and time of the people who came up with it.

 

[Ries]

R&D is free, does not factor into cost.

http://smallbusiness.chron.com/tax-breaks-rd-36815.html

 

[MasterRyu2011]

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.

don't forget about an insanely loyal userbase!

 

[mike7311]

Bring assembly to the US and I don't care about the mark up.

The reason there is a larger margin on the watch is because they can't get the same return as the iPhone memory up sell. 128gb = $200 price premium

There should be no debate that this number is not close to correct because their earnings report supports what their cost of business is. 39% after ALL costs are accounted for would translate into build cost around 25% of MSRP. There is no doubt in my mind that R&D, Advertising, and overhead account for more than the build costs. If people are upset by that, speak with your wallet. I will say that these margins are not healthy for the market and historically do not last. Mircosoft is the perfect example of that, look for these margins to get back to 20-25% after all costs once the world market is saturated.

 

[MasterRyu2011]

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.

I complain all the time when they serve me a $9 bottle of wine and charging me $45 for it. It's similar to how many of these smartphone companies charge a huge premium for an additional 16 GB in storage space (all other things being equal).

 

[crazytrain]

R&D is free, does not factor into cost.

http://smallbusiness.chron.com/tax-breaks-rd-36815.html

And the level of stupidity climbs another notch...

Seriously?? You interpret the information in the link you provided as meaning 'R&D is free'?!

It's about tax breaks on revenue, not about making R&D 'free'.... If a company spends $10M on R&D, it doesn't have to pay tax on the first $10M of profit it makes. The company still has to make $10M in profit to get that investment back - funnily enough, if the company doesn't make $10M in profit, it can't just magically get the money back from somewhere else, it will have lost money...

Simply put, R&D is most certainly NOT free....

 

[blucurv]

R&D is free, does not factor into cost.

http://smallbusiness.chron.com/tax-breaks-rd-36815.html

Nope.

 

[MasterRyu2011]

What is the relevance to all of this IHS?

If people are happy with Watch and willing to pay the price Apple decides to sell it at what are you worrying about?

The components do not make the full product... Design, R&D, Manufacturing costs, Marketing... where shall I stop?

IHS iSuppli - What is the point to your exercise?

The relevance is that we are all geeks and it's nice to see what components are used and which vendors were involved. Everybody knows there are overhead costs and I don't think these researchers are inferring that the prices of the raw components add up to the final unit cost of the product. Of course you're going to have to allocate overhead from all sorts of departments to come up with an accurate number. However, since companies don't expose them in a clear manner without clever accounting tricks, the only thing you can go by would be the component costs. It's a start. What would be more interesting is comparing these costs to that of those of the Samsung, Motorola, and LG Watches.

 

[Black Belt]

These things are ridiculous. The stuff is not off the shelf and Apple spent a lot developing these components. The eventual manufacture is practically irrelevant.

 

[MasterRyu2011]

I disagree. They are attempting clickbait/sensational headlines to drive reads and spark debate within the forums. I don't think MR is trying to cater to anyone except themselves.

No need to bring Android into this - this isn't about Android.

Bingo. All these fanboys from both sides are getting played by these forums and blogs. Controversial topics = cha ching!

 

[usarioclave]

I complain all the time when they serve me a $9 bottle of wine and charging me $45 for it. It's similar to how many of these smartphone companies charge a huge premium for an additional 16 GB in storage space (all other things being equal).

Go ahead and make your own phone, then.

 

[Jimmy James]

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.

Come work for me. You can cook my food. I'll pay your wage based on 400% of my grocery cost. You'll be rich.

 

[centauro1210]

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 Prefer to pay in well develop complicate tech and no fashion Ch********

YOU ARE right

 

[Michael Goff]

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.

You know what the profit margin on the watch is? Please share it with us, you must have an inside track in Apple.

 

[kodos]

I don't understand these breakdowns. These parts are not imagined or created in a vacuum. Neither are they marketed and supported and delivered for free.

If you own a business, and spent 5 years inventing something, I think you would be insulted if I offered to pay you parts costs + some small markup for "profit" when you have spent many years of work that you wish to recoup.

 

[larrylaffer]

Logistics aren't free.

 

[Rychiar]

the watch cost is fine. its the bands that are INSANE prices

 

[Tech198]

Apple know how to make money

 

[ttss6]

Wearing my Steel Watch, I can't imagine how many hours of research went into the making of such an elegant tech piece

 

[tigres]

If Jonny and co are paid annually for their services, accross all hardware lines, where does one differentiate the expense of the singular watch cost of R&D internally?

 

[mi7chy]

No surprise. I guessed it before it was released that the BOM cost would be under $100 and between $60 based on that fact that it only adds negligible cost to an iPod Nano. Since Apple is late to the watch game R&D should be substantially less since they borrow ideas and mistakes from others before them.

 

[JustThinkin']

Whatcha so afraid of?

It's pretty amazing reading all the preemptive comments at the beginning!

They just know what people are going to say, even though no one's said it!. They're essentially saying "don't you dare say that, or we'll shame you!"


The article's pretty clear about what is and isn't included in this figure. Perhaps you think most people are a slightly stupid, and you must insult them before they even open their mouths. Don't you know that 90% of people think they're just a little bit smarter than 90% of the people? Yes, it's an inflated ego problem - but there's more to it. The plain fact is that most of us are smart. And because we tend to be smart in slightly different ways, we think we have an edge on the others.


In that light, I think Tim Cook shouldn't have made his remark. He knows the historical timing of these reports, so he knew one would soon be released on the Apple Watch. And he was probably afraid because he knows the component costs are lower on the Watch. But it makes him sound almost like a liar. At least some of the previous parts cost estimates must have been close - even if only by chance.

Does Tim Cook think no one else reads the context? I'm sure he did, even though he's speaking as if he didn't. Whether or not he realizes it, he's insulting his customers, fans, and followers.

 

[HurtinMinorKey]

It works similar to accounting for patent costs in models. With your logic, Adobe would sell Photoshop for the exact cost of the server sending the download.

Your Adobe hypothetical can only be true if you are assuming you adobe faces a flat demand curve (perfect competition). In the case of imperfect competition (i.e. some pricing power, which surely Adobe has), the demand curve is above the marginal revenue curve. That means the optimal price implied by MC=MR is above MC. And that's why adobe charges more than the MC of providing the program(which is effectively zero).

 

[PJL500]

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.

When using slaves to build the house the cost won't increase much? They are not the richest corporation in the world for no reason?

 

[Rocketman]

If you can expense Apple Watch R&D over the first two quarters after release, you can increase the domestic stock buyback without foreign debt.

Rocketman