BOM proves Apple spared no costs developing iPad 3

[MacAttacka]

There are some loony threads going around how iPad 3 is such let down.

Here are some cost increases Apple have absorbed over iPad 2 to make iPad 3 a reality:

RAM = 82%
Manufacturing = 28%
Display = 53%
Camera - 300%
Processor = 62%
Power management = 70%
Battery = 40%
Total BOM & manufacturing = 16%
Retail = 0%

Apple could have gone for the easy cheap update with the same BOM ceiling as iPad 2 but they bit the bullet and swallowed the extra costs of the BOM & R&D to deliver the iPad 3. R&D costs are of course exempted from the above. Margins on the iPad were already lower than any other iDevice as it is but this is the most aggressive spec/cost move that Apple have ever made on an iDevice. They have pulled all the stops to make iPad 3 a success.

 

[Batavian]

Thats an interesting chart MacAttacka and helps explained why Apple used the cheaper, more power hungry Amorphous silicon display in the iPad 3 vs the more power efficient IGZO displays on the iPhone. It was a real challenge to keep that $499 benchmark, but credit to Apple for doing it.

Nice find.

 

[ewo1992]

I like how the cheapest wifi model to the most expensive 4g model is only a $90 increase in manufacturing cost but they charge $300 + more for it

 

[WildCowboy]

That comparison isn't entirely valid...you're comparing the cost of building an "iPad 3" today to the cost of building an iPad 2 today.

The more valid comparison would be between an "iPad 3" today and an iPad 2 at its launch, as costs generally come down over time. Fortunately, iSuppli has a track record and that information is available.

So in the case of the display package (display plus touchscreen), it costs $127 on the new iPad. It also cost $127 on the iPad 2 when that device launched, but as costs have come down over time and the technology has aged, that same iPad 2 display/touchscreen now costs only $97.

Similar story with power management chips...they cost $10 on the new iPad and cost $10.20 on the iPad 2 when it launched last year. But now those iPad 2 chips can be had of $5.85.

Certainly some components have gone up in price even taking into account launch pricing...baseband, cameras, battery, etc, but the effect is smaller than what you're assuming comparing the new iPad to the current iPad 2.

Bottom line is, however, that there is still an increase in the BOM. For the 32 GB cellular-capable model, the iPad 2 was $323-$326 at launch last year, while the new iPad is $364. And of course these are all just estimates.

 

[MacAttacka]

I like how the cheapest wifi model to the most expensive 4g model is only a $90 increase in manufacturing cost but they charge $300 + more for it

How much do you think it costs Samsung to carve out 16GB or ram on the same piece of silicon it costs them to carve out 64GB? Answer = Nothing.

 

[poloponies]

I like how the cheapest wifi model to the most expensive 4g model is only a $90 increase in manufacturing cost but they charge $300 + more for it

They're trying to achieve an average margin so yes, the margin on the high end is greater than that on the low-end. Just like every other situation in life.

 

[MacAttacka]

That comparison isn't entirely valid...you're comparing the cost of building an "iPad 3" today to the cost of building an iPad 2 today.

So in the case of the display package (display plus touchscreen), it costs $127 on the new iPad. It also cost $127 on the iPad 2 when that device launched, but as costs have come down over time and the technology has aged, that same iPad 2 display/touchscreen now costs only $97.

Similar story with power management chips...they cost $10 on the new iPad and cost $10.20 on the iPad 2 when it launched last year. But now those iPad 2 chips can be had of $5.85.

Do you know why the price of the iPad 3 display is the same as the iPad 2 display? Because Apple alone is the only company on the planet with the buying power to order 60million plus units driving the costs down.

When the next Android and Windows 8 tablets get a come in at a low price remember to thank Apple.

 

[psonice]

How much do you think it costs Samsung to carve out 16GB or ram on the same piece of silicon it costs them to carve out 64GB? Answer = Nothing.

No, answer = 4x more. 64GB is 4x bigger than 16GB - and the parts that make up each bit are the same, so 64GB is 4x bigger physically too. Because the chip is 4x bigger, you get 1/4 of the amount of chips from a slice of silicon, meaning you produce 1/4 (or actually less!) of the chips for the same amount of money. Therefore each chip costs 4x more to produce. Other costs will be no higher though, so the end product price might be less than 4x more.

Or, you could buy 4x 16GB chips and package them together.

Either way, 64GB costs a whole lot more than 16GB.

 

[MacAttacka]

No, answer = 4x more. 64GB is 4x bigger than 16GB - and the parts that make up each bit are the same, so 64GB is 4x bigger physically too. Because the chip is 4x bigger, you get 1/4 of the amount of chips from a slice of silicon, meaning you produce 1/4 (or actually less!) of the chips for the same amount of money. Therefore each chip costs 4x more to produce. Other costs will be no higher though, so the end product price might be less than 4x more.

Or, you could buy 4x 16GB chips and package them together.

Either way, 64GB costs a whole lot more than 16GB.

No Dude. It costs exactly the same. In the same way it costs exactly the same amount to build a 2Tb HDD as it does a 500GB one. Al; process technologies cost the same. Samsung charge more for higher capacities to differentiate the market. The actual cost of production for all ram is exactly the same. Samsung and Apple are in the habit of this thing called "business" where they aim to make a "profit"

 

[dell who?]

No Dude. It costs exactly the same. In the same way it costs exactly the same amount to build a 2Tb HDD as it does a 500GB one. Al; process technologies cost the same. Samsung charge more for higher capacities to differentiate the market. The actual cost of production for all ram is exactly the same. Samsung and Apple are in the habit of this thing called "business" where they aim to make a "profit"

I'm sure you don't need me to tell you this, but logic and reason are not acceptable commodities here. I am personally enjoying your take on all this, but leave it to other people to assert themselves unnecessarily.

Wisdom = keeping mouth shut to prevent having room for foot to fit in it.

 

[Fruit Cake]

And they made a tidy profit from my 64gig gsm iPad, the could have at least made a 128gig model. Is 200% markup not enough for them when they barely made 50% on he 16gig wifi? It would be nice if us who splashed out in the high end models got something a little extra not just the flash mem which is just pure profit for them.. Say some more warranty, iTunes credit, a free dock, free cover... IDK

 

[MacAttacka]

And they made a tidy profit from my 64gig gsm iPad, the could have at least made a 128gig model.

Why would they create a 128GB iPad SKU when the macbook air is still stuck as 64GB for the base model and supposedly a superior product?

 

[urkel]

Why would they create a 128GB iPad SKU when the macbook air is still stuck as 64GB for the base model and supposedly a superior product?

Because if we're supposed to be living in a "Post-PC" world then we shouldn't have forced limitations. IF 128GB is possible then why not offer it as a top tier option.

 

[Fruit Cake]

I don't regard the iPad as a pc, to me it's a different class device. If they put iPhone on 64gig on a single chip, then like previous models they could put 2x NAND chips in the iPad. Sure less margin, but still a healthy margin, better then the 16gig wifi.

 

[kdarling]

How much do you think it costs Samsung to carve out 16GB of ram on the same piece of silicon it costs them to carve out 64GB? Answer = Nothing.

This is incorrect.

They don't carve out 4 times the amount "on the same piece of silicon".

They STACK multiple die of 2GB or 4GB each on top of each other and connect and test them, which is why the combination costs more.

Btw, it's Flash memory, not RAM.

 

[sphinx99]

I agree with the OP, holding the line on price was impressive for the 16GB model. The higher capacity models always have been and continue to be big profit-makers for Apple.

Note that for Apple this is icing on the cake. For nearly all other tablet manufacturers, any app store revenue is mostly split between Google and the carrier; with iOS devices, Apple sees the majority of whatever does not go to developers. Apple could sell these at cost and still make money from iTunes; making money on the device simply pads the score.

 

[ZipZap]

This is incorrect.

They don't carve out 4 times the amount "on the same piece of silicon".

They STACK multiple die of 2GB or 4GB each on top of each other and connect and test them, which is why the combination costs more.

Btw, it's Flash memory, not RAM.

I have to imagine, with no expertise, that at the mass quantity levels that these are produced the cost is effectively the same.

They dont retool to produce 5 chips. 1,000,000 chips then switch then 1,000,000 as an example. I doubt the cost varys.

Layers, dies...its all automated.

 

[psonice]

No Dude. It costs exactly the same. In the same way it costs exactly the same amount to build a 2Tb HDD as it does a 500GB one. Al; process technologies cost the same. Samsung charge more for higher capacities to differentiate the market. The actual cost of production for all ram is exactly the same. Samsung and Apple are in the habit of this thing called "business" where they aim to make a "profit"

No, it doesn't cost exactly the same. You could say 4 cars cost the same as 1 car because it's built by robots and all comes off the same production line, but it's not true is it? You have 4x the material costs, and 4x the production time to build it.

With NAND it's pretty much the same. The chips are made on silicon wafers. Each wafer costs a certain amount. Turning it into working chips costs a certain amount. You might get 100 16GB chips from a wafer, and that wafer might cost $100 to make, so 16GB chips cost $1 each. 64GB chips have 4x the memory, which means 4x the number of parts to build that memory, and 4x the number of parts take 4x more space on the wafer. A 64GB chip is 4x bigger than a 16GB chip, on the same process. Or, it's made up from 4x 16GB chips. 4 chips take 4 times more space than 1 chip.

So you get 100x 16GB chips at a dollar each. The wafer size is fixed, and the 64GB chips are 4x bigger. You therefore get 1/4 of the chips from that $100 wafer. 25 chips. At $4 each. They cost 4x more.

After they make the chip, they have to package it, ship it etc. Those costs are near identical for 16GB and 64GB, so the end result might be less than 4x more, but it still costs more. Know why hard disks don't have such a big price difference for various capacities? They come in a big, expensive to make metal box full of motors and circuit boards and stuff. Only the disk itself and the reading heads change between models, and they're not a big percentage of the costs. So the manufacturing costs aren't much different between 500GB and 2TB.

 

[kdarling]

I have to imagine, with no expertise, that at the mass quantity levels that these are produced the cost is effectively the same.

The cost of four of anything, be it cupcakes or houses or memory chips, is always more than the cost of one.

Especially in the case of high capacity Flash modules, where the stacked die must be connected together with gold. Then each chip combination has to be tested and bad blocks marked off.

(Manufacturing integrated circuits is not a perfect business. A percentage of chips will not pass the full final tests. Sometimes that's okay; for example if a Flash chipset doesn't end up with 32GB, it can still sometimes be sold as a 16GB chipset, but the original extra cost for attempting 32GB still exists. Sometimes it just has to be melted down for the gold to be used again. That's not free either.)

 

[RetiredInFl]

The chart is based on all pure speculation. There is NO WAY NO HOW that that information could be accurate as no one has any idea what Apple paid for any of their parts based on the zillions of pieces and secret contracts they make with suppliers. That pricing is based on "open supply" and in no way represents actual costs to Apple. Getting that information from Apple would be like finding out the release date and specs of the iPhone 7 or iPad 9 today.