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Apple Watch Sport Component Costs Estimated at $83.70, Which Won't Sit Well With Tim Cook
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Only being able to look at most notifications and not reply, its a gimped version of iOS. I can do much more on my $199 iPod Touch.
Honestly we should be congratulating them but something tells me the estimates may be off due to the fact negotiated costs at the time these deals were made with their supply chain likely happened months if not over a year ago.
Pricing could fluctuate for any number of reasons over the course of a month or a year. I'm curious if iSupply makes a cost comparison accounting for pricing variations over time. I doubt it, and that is likely why Cook is reminding people these estimates are almost never accurate as it pertains to the company's operational product life cycle.
Actually, very technically, the cost individual component costs are a rather close approximation of the cost of the product (fully assembled) excluding software costs.
Since Apple owns just about all of the software they put on these devices (excluding some low level operating code that pertains to each component and for whom the cost is already accounted for in the sale price) their "actual" software costs are zero.
But these are technicalities based on common financial reporting practices.
Very simply, soft costs like R&D are almost never tied to specific product profitability. And any company who claims they need to recoup development costs is feeding you BS. (Drug companies for example.)
R&D funds are often allocated and accounted for at a high level long before they are divided and allocated to specific projects. The nature of R&D lends itself to the act of acquiring knowledge which falls into a category called "intellectual property". The value of R&D performance is often looked at in terms of quantity of patents and potential opportunity.
It's actually a rather complex topic so confusion is expected and quite common but suffice it to say, software development has created the need for a dual use of the term development. One in Research & Development, the other in context of Software Development.
If your core business is hardware development then R&D may provide opportunities for manufacturing but the costs are never tied directly to the the supply chain, which commonly consists of Manufacturing, Sales and Marketing.
The Supply chain is very important as it is how you acquire revenue in a hardware development business.
With respect to software you don't manufacture software. You develop it once and then license and maintain it. It's similar in many ways to a standard supply chain but there are enough nuances to the process of developing and maintaining software that the manufacturing supply chain has it's own cost center or a separate line item on the total budget and the software development life cycle exists on it's own line or cost center.
For financial reporting purposes the the Bill of Materials (which is what iSupply is attempting to ascertain from their teardown of the Apple Watch) falls into the Manufacturing Supply Chain budget which is then valued against the sale price per item sold and so on.
Since Apple does not license its software to anyone it's likely a cost that is amortized just like the hardware design / Research and Development budget.
Why does this matter? Because their profitability is examined by comparing quarterly Supply Chain Metrics (which are easily compiled from the Bill of Materials multiplied by the number of units produced in a given quarter and the number sold, as well as any number of units returned and so on). So how do they report on the Amortized costs. That's simple. (kidding)
Each company has it's own processes, but FTC regulations permit only so much flexibility to protect the interests of investors etc.
In short Amortized costs are divided up across a number of months or years and generally have a consistent run rate. It's considered a fixed cost and in terms of total product life cycle the amortized cost for the Apple Watch could span the life of a specific model in the supply chain or the life of an entire product category. It really depends on how the company agrees to handle it. But however they decide to slice it they are obligated to report these metrics to a number of third parties for regulatory purposes.
Bottom line, the only way to get TRUE cost of a specific product would be to have access to their chart of accounts. And that ain't happening any time soon.
You're failing to take into account that 80% of their margin is going towards paying people to come up with ridiculous ways to blame poor quality on the users living normal lives in normal environments that other watches survived for hundreds of years. And when that fails to get them off the hook, there's all the returns and repairs. And when that doesn't fix it, the inevitable class action suit. So, really, Apple is giving these things away
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I'd say the first watch "crown" or watch stem in 100+ years to show unusually high problem rates within a week or two would qualify.
I think only people who don't realize how things really are in the business world will feel ripped off.
It's like the employees at a production company I know of who think that just because 2 million came in, that the corporation gets to keep and spend it all. Not considering, equipment, office lease, outrageous insurance and payroll costs, utilities, city fees, state license fees, state taxes, federal taxes, accounting fees etc. etc. etc. That 2 mil turns into 700k pretty fast.
Well, of course you can do more with your iPod touch...
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My dad used to work at a well known manufacturer of fire trucks, and he told me about a union meeting where a bunch of the rowdy ones were wanting another raise... and one of his co-workers got up and said, "They can easily pay us more money. All they have to do is raise the price of the trucks."
I guess ignorance is bliss or something like that anyway.
This would qualify as a defect, not gimped capabilities.
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Well, of course you can do more with your iPod touch...
I can do even more with my Mac Pro.
Yea, at least my $199 iPod Touch doesn't tell me that my email cannot be displayed and to read it on my iPhone
Do you have any information about the company that would cause you to believe that they're not pricing the correct components?
Or you feel it is too costly and do not go at all because you understand they need to make a profit regardless of you feeling like the price is too high. There is a reason I only eat food out that it too annoying to make at home.
Apples markups are too high yet they can get away with it so they do. However this is tech stuff we are talking about, so no big deal.
They likely do forget to add in a lot of costs involved so it may just be tossing out numbers.
Yeah, it's amazing how these "costs" attitudes change when you ask people to start from scratch and create an Apple Watch. The manufacturing equipment, utility costs, research and development, quality control, advertising, marketing, transportation, labor.. Tell someone to do all of that for less than $100 and they're speechless.
Love you mac rumors, except when you try to write business commentary.
Yes, R&D, advertising, etc are part of a companies bottom line....but....
That overhead is factored into the retail selling price of a product, just like bags for putting your groceries in are part of the price you paid for a can of soup.
So no.... it has not baring on "profit margin" for the Apple Watch. For Apples overall annual earnings yes... watch....no.
No the component costs do not cover development of software, but that is an R&D cost.... already accounted for.
Oh... and the formula to figure out a profit margin is this:
Retail - cost = margin dollars margin $/ retail= margin %
So no.... the margin is not 24%.... 24% is the cost percentage....
Apple is making a 75% margin or profit off of the sport watch.
Yes, R&D, advertising, etc are part of a companies bottom line....but....
That overhead is factored into the retail selling price of a product, just like bags for putting your groceries in are part of the price you paid for a can of soup.
So no.... it has not baring on "profit margin" for the Apple Watch. For Apples overall annual earnings yes... watch....no.
No the component costs do not cover development of software, but that is an R&D cost.... already accounted for.
Oh... and the formula to figure out a profit margin is this:
Retail - cost = margin dollars margin $/ retail= margin %
So no.... the margin is not 24%.... 24% is the cost percentage....
Apple is making a 75% margin or profit off of the sport watch.
Why should we assume iSuppli's figures are accurate? Tim Cook already said these estimated aren't even close to being accurate. What we do know is Cook said the gross margin on the Watch would be LESS than the average Apple forecasted for next quarter (39%).
Some Kickstarters have done pretty close to that.
The thing is, these days anyone... same as Apple did... can hire factories to produce polished forged cases, circuit boards, displays, and assemble them to a certain design.
What's remarkable is that with all the extra resources and money that Apple has, their Watch is so simplistic in many ways. Same old rounded rectangle shape. Same old rectangular screen. Basically the same electronics as everyone else. A smaller battery than most.
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Cook didn't say component cost estimates were wrong. He said overall cost estimates were wrong. (Probably meaning any based just on component costs.)
Correct. He said this was expected at first, anyway.
On a side note, I still wonder why anyone calls him a supply chain guru, considering his record on that topic the past few years since he become CEO. Smacks of the Peter Principle. Perhaps he should've stayed in that job.
So is Tim Cook lying when he says the gross margin on the Watch will be less than Apple's guidance for next quarter (which was around 39%). If the gross margin is 39% there's no way the profit margin can be 75%.
I guess it just depends on what you value. I'd say that for me, they've never been overpriced compared to the competition. Maybe overpriced compared to what I'd like to pay, but never compared to the competition.
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Yea, at least my $199 iPod Touch doesn't tell me that my email cannot be displayed and to read it on my iPhone
Sure, but the Apple Watch isn't supposed to be a mini iPod touch / iPhone, etc.
If you're argument is that what the Apple Watch does is useless to you, I'd totally see your point, as I feel the same way. But that has nothing to do with it being 'gimped' because it doesn't do what the iPhone does. It isn't supposed to.
Yeah, I was being sarcastic. Assuming the internals are essentially the same as the sport model, no way can the gold on the Edition be worth anywhere close to $17,000. And apparently the only difference between the 10,000 version and the 17,000 version is the leather strap? $7,000 more for that?!
http://www.businessinsider.com/profit-margin-mark-up-on-gold-apple-watch-edition-2015-3
You're right, if people want to spend their money on this, then by all means. But this has to be one of the most insanely overpriced Apple products ever.
You are again correct. For those without access, here's the pertinent pieces of the Apple call:
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The $7K strap also has a gold buckle (probably about $800 of gold in that).
There's about $1300 of gold in the watch itself.
But, in jewelry, the gold in the piece is always way bellow the price of the retail piece.
Well, its not that insane if your able to sell it for most of the initial cost years later (which undoubtedly you will). It is the esthetic/status value that counts in such a thing and it doesn't tend to go down that fast.
Even an Iphone, which has a limited esthetic/status value doesn't go down fast. An "As New" Iphone 4s can be had for $240 bucks (3.5 year), $150 bucks for a Iphone 4 (4.5 years). I'd expect the sports watch to devalue slightly slower than the phone.
My own estimate, watch 5 year resale value (% of initial price) without straps in good condition (Apple will maybe drop price on previous year model by $40-50 bucks when new one comes out, we will have to see) :
Sports Watch: (38mm) 25% (42mm) 30%
Steel Watch: (38mm) 40% (42mm) 45%
Edition Watch (38mm and 42 mm) 80%
That would mean
Sport : 38mm: $90 42mm $120
Steel: 38mm: $200 42mm $240
Edition: 38mm: $8K, (42mm) $9.6K
Considering this, I'd say the steel 42mm is the best buy.
People seem to forget the high resale price of Apple products.
Would someone forget the resale value of a car when buying it?
Considering resale, the watch is pretty cheap no matter what version you buy.
The price is probably right!
Do you know how to even quantify R&D costs? Are there R&D costs? of course ! Are touch screens a function of the current R&D? no, they were in the past but not now. My reasoning applies to all of the components in the iwatch.
How much more R&D do you think went into the iwatch that wasnt already there in the ipod nano 6th gen. a few more radios, sensors, software etc.
I like OSX, I dont mind iOS. In general I am a happy Apple user at the best of times but I know Apple is a profit maximizing company, and I know they have very smart pricing modellers who do fancy statistics to work out your willingness to pay based on historical evidence. The company has this down to a fine art. Apple has done some great things - no doubt - but remember in between everything Apple makes are iterations. The Apple iwatch is just another iteration of product development. The big leaps only come around every 10 years or so(maybe sooner). With Apple you will see leap (iphone, iphone with camera) then iterations (Ipad, Ipad with camera, Ipad retina, Ipad mini, Ipad air, maybe Ipad Pro, iwatch - iwatch will get slimmer, band will be a battery etc.
R&D takes loads of time i.e. years and years and because of that Apple needs to stagger its product release with iterations of old technology (iphone) with a few more parts (that could have added initially but they are essentially profit maximizers) until the next leap.
Here's to the next great leap!
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