Breakdown of Costs in an Intel iMac

[Analog Kid]

I wouldn't be surprised if Apple got special pricing when they made the switch-- Intel has wanted them as a customer for a long time. I don't completely understand why Intel would care when they already had 90% of the market, but they did.

This says a lot to the folks who thought Intel would mean cheaper Macs. Apple changed processors because of power/performance but took a hit on cost/performance.

The PowerMacs might be a different story if they use 3rd party motherboards. I don't know that they will though-- they'd lose their product differentiation.

 

[nagromme]

Apple's initial statement was that they would switch the low end consumer models first, and the performance models later.

Does anyone have a link to that? It's often repeated, and I remember SOMETHING like that being said by someone at Apple sometime... but I can't seem to find a genuine reference. I do know for a fact that it was not said by Steve Jobs at the initial Intel announcement--there's a transcript online and he never got that specific. (Nor did he say the transition would start in June--but rather BY June. Often repeated wrong.)

In any case, the reason to move the low-end later is obvious: it makes no sense to make the low-end machines outrun the higher-end models targeted at the people who most demand speed. An iBook Core Duo (or Mac Mini) today while the PowerBook stayed G4-only never made sense.

 

[war]

their markup really isn't that bad

25% margins off of something really isn't that bad. Sure, some computer companies charge less but the margins are still better than on many consumer products. If you knew how much the Gap actually paid for that sweater you paid $50 for you probably would cry. Even when clothing companies offer deep discounts they typically still make a hefty profit on their merchandise.

I switched to the mac 6 years ago and have never found their prices to be outrageous. Sure they aren't as cheap as what Dell advertises but how many people actually buy that $350 PC. Maybe 15 years ago this whole mac is more expensive thing was truth but not now. I hope that this intel transition can finally put that myth out to pasture. Even if the mac cost an extra $50 I would still take it over a normal PC box. It is a machine but who doesn't want something that looks nice sitting on their desk. Most PC look like appliances and not something that is awe inspiring. Let's face it, if looks weren't important there wouldn't be such a large cosmetics industry. Some may claim that those alien PCs are cool with all their lights but personally I think they are tacky. They are owned by those same people who spend thousands of dollars tricking out their car. If you like to trick out your car that is fine but personally I would just take that extra couple of grand and buy a better car. Just like I would take that extra money and buy a better computer.

Sorry, rambling again....

 

[dongmin]

Does anyone have a link to that? It's often repeated, and I remember SOMETHING like that being said by someone at Apple sometime... but I can't seem to find a genuine reference. I do know for a fact that it was not said by Steve Jobs at the initial Intel announcement--there's a transcript online and he never got that specific. (Nor did he say the transition would start in June--but rather BY June. Often repeated wrong.)

It was one of those rumors that got quoted so much that it became a fact. Funny how the internet works.

But it's all moot since we know what came out first. I'm sure Apple would've loved to have introduced the iBooks and Minis also but the new lower-end Intel chips (Core Solo) aren't ready. Either that Apple is planning a major redesign for these consumer systems. It's possible that the larger form factor of the 15" PowerBooks and iMacs made them easier engineering challenge to quickly adapt the new architecture.

 

[jbernie]

it's a $400 profit per imac... but that's just profit over the cost of the components.

And that I assume would be based of the list price of the components, has anyone seen anything to suggest what Apple is really paying intel for every chip? I don't see them paying any where near the "list" price. Given a) the volume required b) incentives intel would give to get Apple on board c) the free publicity the move has generated for Intel (Apple as well).

Yes there are all sorts of immense costs in bringing products to market, however I'm sure you will find Intel provided a decent amount of assistance in the R&D of getting the new machines to market.

The best reason for a price reduction? While Macs have power pc chips you don't have another manufacturer to get a fair price comparison, but with the Intel chips, the customer will ask, do I want to pay $1200 for this nice all in one Apple pc, or do i lose the compactness of the Apple and buy a Dell or something else for around $600-800.

If you like the look and have the $$$ then go Apple, if you aren't flush with the $$$ then there are an awful lot of competitors out there with Intel chips.

I definately won't encourage Apple to sell at a loss a la game consoles, but a reduction in price would make them more desirable and allow an increase in sales.
1000 units @ $1200 = $1,200,000
1091 units @ $1100 = $1,200,000 (small rounding up of unit #)

I think Apple could increase its sales by 9% with a $100 price drop.

 

[nagromme]

1000 units @ $1200 = $1,200,000
1091 units @ $1100 = $1,200,000 (small rounding up of unit #)

I think Apple could increase its sales by 9% with a $100 price drop.

But $1200 isn't what Apple makes. Sales dollars don't count, only the PROFIT component. $100 eats FAR into that. (And $400 isn't the profit either, as others have explained above. It's less than that. R&D, etc.--not just the parts.)

I know what you mean about cutting profits and making it up in volume, but I also think Apple has probably calculated that balance already. In fact, if I were them I'd spend money on advertising first, not on slashing prices that are already competitive with PCs.

...the customer will ask, do I want to pay $1200 for this nice all in one Apple pc, or do i lose the compactness of the Apple and buy a Dell or something else for around $600-800.

You lose a whole LOT more than compactness if you go with a Dell or other PC. Even if Windows is "just as good" as OS X, and if the iLife software bundle has no value, a look at ALL the specs of a given Mac model vs. a Dell configure to TRULY be comparable still makes the Mac and the Dell come out close on price. Sometimes the Dell even costs more.

 

[gekko513]

And that I assume would be based of the list price of the components, has anyone seen anything to suggest what Apple is really paying intel for every chip?
...
1000 units @ $1200 = $1,200,000
1091 units @ $1100 = $1,200,000 (small rounding up of unit #)

The article says it's not based on the list price, but on an estimate on how much Apple has to pay.

You forgot expenses in your calculations. I add $22 in boxing and other expenses that is per unit based.
1000 units @ $920 = $920,000
1091 units @ $920 = $1,004,000

Profit: $280,000 for the first example and $196,000 for the second. So they would need a lot more than 9% increase to cover for the loss of profit of selling it at $1100. And we don't know if we have to add $22, $10 or $200 to this estimated component costs to get the real expense per unit, anyway.

 

[1996Mac]

Macs still cost too much. Apple should take the playbook from Microsoft's XBOX 360 and take a loss to build marketshare. Or take Cringely's suggestion and sell below cost. Seems to be heading that way, with the inclusion of the ATI Radeon X1600... they are gunning for the home livingroom.

Are you KIDDING me?

Keeping mind M$ makes money only on two of its products, office and windows. They lose money on everything esle. Beside M$ make money on the backend of the games that get sold. Where will apple make there money? iPod make some money for Apple, but not as much as you think. How much do you think they make on an ipod? marketing, packaging, shipping, ipod replace units!...you do not have a clue what it takes to get things to the customer hands.

 

[longofest]

Macs still cost too much. Apple should take the playbook from Microsoft's XBOX 360 and take a loss to build marketshare. Or take Cringely's suggestion and sell below cost. Seems to be heading that way, with the inclusion of the ATI Radeon X1600... they are gunning for the home livingroom.

Yes. I'm sure we'll see that in our lifetime (Apple taking a loss to gain marketshare, that is). 🙄 I wish Apple would take your advice, but oh well...

I love the fact that everyone was saying that the intel macs were going to be cheaper for apple to build, and here they are most likely wrong. Granted the uncertainty around the chipsets could make the Intel mac cheaper, but I doubt it would make up that much considering Apple Engineers have gotten good at reusing designs over the past few years.

 

[revfife]

If you really want to compare profit and loss margin wait till mac mini goes intel then complain about Apple's profit margin. It is hard to believe with the current system and software how Apple is not losing money on the mini. Besides isn't it the mini that is designed to make people switch from PC and not the imac? 😎
I think they have priced themselves as low as they can go and still cover costs.

 

[QCassidy352]

It's not $400 profit, people! Development costs eat into that, as you say. I *hate* these stupid take-apart fiascos for this very reason. They think it took zero hours to actually design and prototype this thing. The development costs alone probably mean they just about break even on each machine.

Fine, let me go buy the $800-whatever in parts and watch YOU put it all together for free.

The only thing that happens when these "articles" comes out is everyone gets in a tizzy about how Apple should lower prices. Anyone who actually believes that the only thing Apple has to pay for is the parts is a moron, plain and simple.

You quoted me... but did you even read what I actually wrote? 😕

My whole point, which I explicitly stated, was that it was only a $400 profit over the cost of components. I went on to list a lot of things that the $400 had to cover (including R&D).

Please take the time to actually read the posts you quote. 🙄

 

[EricNau]

I agree with what some others have said. Apple should sell them at cost, and in the meantime just get money from iPod sales. This would be a good way to build market share. Seeing the imac costs Apple about $900 + packaging and shipping, they should charge $999.

 

[nagromme]

Speaking strictly as a consumer of Apple computers, who owns no Apple stock, I am 110% in favor of Apple giving me my next Mac at or below cost 😀

(But don't forget student/educator pricing--and the even bigger discounts Apple arranges for large school purchases: Apple has ALWAYS been willing to cut profits close in that market. Which may be the MOST important market to build mindshare in for the long term: those students go out into the real world appreciating Macs.)

 

[igxqrrl]

Misconceptions

There are a lot of misconceptions in this thread that could be cleared up by reading the article.

This type of teardown to determine costs is done on every major consumer product. Companies rarely publish this information, but analysts need it to guesstimate profit margins.

So of course they don't assume that Apple paid list for the components. That would defeat the purpose.

And as so many have commented, and so many others have ignored, these are the 'fixed costs'. That is, they won't change (very much) as volumes change. Things like marketing costs are variable. It is important to keep the variable costs separate, because those are the levers that Apple can pull to optimize demand.

Sure there is income above production costs in these numbers, but if Apple spent $0 marketing these machines, their volume would be pretty close to 0. Those nice pretty Apple Stores cost money. The nice pretty Apple website costs money. OS development costs money. Those costs are not included in the price determined by iSuppli. iSuppli is trying to simply determine the production cost, and taking that number out of context leads to a lot of illogical conclusions.

 

[shamino]

Macs still cost too much. Apple should take the playbook from Microsoft's XBOX 360 and take a loss to build marketshare. Or take Cringely's suggestion and sell below cost. Seems to be heading that way, with the inclusion of the ATI Radeon X1600... they are gunning for the home livingroom.

And how, praytell would they remain in business? Market share without any profits is not the way to run a successful company. And if you say they should let iPods subsidize the Mac losses, one could easily counter with "then sell iPods only and get out of computing".

Game consoles can get away with selling boxes at a loss because they charge very high fees (including royalty charges) to the software developers. Companies like EA pay substantial royalties to Microsoft, Sony and Nintendo for the right to develop software for the platform.

Would you suggest Apple adopt that model? That would mean the end of all low-cost software for the platform, the end of open source, and the end of hobbyists. Which will inevitably strengthen the (currently bogus) argument that Mac have no good software.

 

[Spike72afa]

It's more than what's in the box...

I have read this thread and continue to be amazed at the poor job our government schools do in teaching the difference between sales, revenues, profit, and margin. An even more basic concept that escapes folks is price.

Companies (who have an interest in making money) create goods and services, which they sell at some price. They can set the price anywhere they want. But there is a connection of the amount of money you make per unit of sales versus the number of people who will buy the product at any particular price. I am sure Apple could sell iMacs for $3000 per, and someone would buy them. Not many - but some would. Or they could sell them for $1 more than it costs to put a shiny new Mac in the box and deliver it to your door. But, they don't go for either. They (try to) pick a price which is the highest they can get for all the boxes they can put together. Too high - stock sits on the shelf; Too low - you leave money on the table when you run out of goods.

The problem most people have is that they believe that the price is a simple mark up from the cost per unit. The price is set to be the highest amount you can get. The cost is a number that you then have to subtract to see if your company gets to stay in business. I would love to see a $600 Intel MacBook. I'd probably buy two. But even if the parts that went into it only added up to $400, Apple should still charge as much as they can get. That's the only way you can be in business today and be there tomorrow as well.

BTW, there is a great related post by David Every on the costs of things at
http://www.igeek.com/articles/Politics/General/MilitaryCosts.txt

 

[macosxuser01]

In my opinion, i think the imac is at a reasonal price. your getting a fast 2Ghz Intel iMac for $1699 and its 20inch. 2 years ago the 17inch iMac was $1799. Also the software (iLife) over the years has dramically improve. iMovie supporting HD, Gargeband and being able to make your own podcast. And has anyone forgot that Apple includes FREE SHIPPING when you buy a Mac😀

 

[maya]

Paying Apple a $400.00 USD profit once a year or at times once in 2-3 years is nothing to me. I hardly ever upgrade every year, and with the introduction of the Intel Macs nothing is going to change in my purchasing habits. 🙂

I have no problems with it. 😉

 

[TheMasin9]

lower margin

isnt this a lower margin compared to what apple usually makes?

 

[guez]

great question

Anyone know how much they made of the G5 iMacs? If the chips are costing them that much I wonder how the Intel Mac minis will fare? How much cheaper would a new single core Intel chip cost?

And what about the iBook? Intel's mobile miracle chips don't come cheap and may put Apple in an interesting position with respect to pricing/margins. I suspect that the Intel switch, while probably necessary, will prove to be a mixed bag for Apple.

 

[caveman_uk]

Anyone know how much they made of the G5 iMacs? If the chips are costing them that much I wonder how the Intel Mac minis will fare? How much cheaper would a new single core Intel chip cost?

The intel mac mini's will be single core.

Intel (like Apple and AMD) practices market segmentation. They charge a premium price for a premium product. Intel charged maximum top price for the fastest P4 chips whilst effectively charging peanuts for the celerons which were essentially crippled versions of the same chip.

The single core processors will probably be quite a lot cheaper than the duos.

 

[atari1356]

I think the higher cost of Intel chips over PPC chips is probably part of the reason Apple chose to not include things like FW800 and S-Video in the MacBook Pro. They've had to cut a few features to try and keep their profit margin the same (or close to) what it was with the previous models.

 

[iTron5]

Oh please; that's one of Microsoft's monopoly tactics. They did that on the XBox and lost $4 billion dollars. That would SERIOUSLY hurt Apple, even if it gave them a 16% marketshare like the XBox, it may not be worth it.

It's hard for microsoft to use monopoly practices on a market they don't dominate. Unless you refer to them using the monopoly in other areas to make money so they could afford this, then that's a little different. Either way, this happened long before microsoft entered the console market, it's common for a company to lose money on every system sold and make it back on the games. Also i don't believe microsoft ever intended really to make any money on the xbox at all ( although i'm sure they hoped it would do better ). I think i remember seeing an interview with blackley i think his name is, the guy who headed the xbox team saying that the console market is extremely hard to break into, so microsoft just saw the initial xbox as a way to get their foot in the door and get some video game makers interested and figured they would make money on the new one. Guess we will see how that goes.

Anyway back to the topic:
I do agree though that apple can't afford this practice in general. Although if the ipod keeps making more and more of the profit for apple maybe they can
🙂

 

[~Shard~]

$265 per processor? I highly doubt Apple would let themselves get raped that badly by Intel. Sure, if you're buying a handful of them, maybe $265/proccessor, but at the bulk quantities Apple is ordering? They have to be geting them for cheaper. 😎

 

[bigandy]

i read this and the first thing i thought was 'what a load of crap'. they're omitting R & D costs, marketing, and so on...

they're also omitting the fact that that's still a custom logic board in there.

however, i do think that apple are paying a good bit less than that for the processors. making that little profit on each machine?

apple?


i think not.