Breakdown of Costs in an Intel iMac

[plinden]

If apple wanted tremendous marketshare they would have priced these machines at competition levels against dell/hp/gateway/lenovo. I don't think apple is aiming for that, rather, is looking to aim more at the home and enthusiast. In other words they will still remain a niche player.

Have you actually priced comparable dual core machines from Dell/HP/Gateway/Lenovo? I'm guessing you haven't, since if you had you wouldn't be saying that.

They'll remain a "niche player" because their false reputation for being overpriced means that lots of PC users don't even make the comparison.

For instance, the following (all with 17" LCDs, DVD burners, 512MB RAM, mulimedia kb/optical mouse, with no extra software, i.e. nothing comparable to iLife):
Dell XPS 200, dual core P4 3.0GHz, Windows MCE, with remote, X600 graphics card, 160MB HD = $1358
Gateway (no small form factor PC that I could see on a cursory glance through their site) - FX400S, dual core P4 3GHz, Windows MCE, etc - $1347.
Lenovo nearest is ThinkCentre M52, Dual core 2.8GHz P4, 80GB HD, X700 GPU, etc - $1318
HP m7100y - dual core P4 3GHz, Windows MCE, etc - $1469

If you want to complain the Core Duo 1.83GHz != the P4 dual core 3GHz, take $50-$100 of each of the Dell, Gateway and HP.

Most of the resistance to greater market share is inertia - people tend to buy what they know even if they are convinced there's a better alternative, until there's a sudden shift in attitudes. That hasn't come yet for Apple, if it ever does.

 

[mklos]

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.

Oh pfft.... I dare you to even attempt to show me a better deal on the PC side! Market share isn't everything. Dell went after market share, and it worked for a while, but now they're starting to slightly tilt down hill a little and I suspect that they'll continue to go down hill, although slowly. Honestly, I think Dell should sell the company off and give the money to their shareholders! 😀

I think Macs are some of the best deals out there. There's no real computer companies that does what Apple does, like build their own hardware from the ground up, design an OS from the ground up to go with that hardware, create a suite of apps that work seamlessly together, include GOOD 3rd party software, and produce some of the best working computers money can buy that isn't vulnerable to things like spyware and viruses . For all of that, I'd rather spend the extra $100 to $200 more. Its more than worth it.

 

[ncbill]

People seem to be confusing profit with margin here, specifically gross margin.

When you calculate gross margin, you do NOT allocate fixed costs like R&D or overhead.

Apple's gross margin on machines has historically been very high, close (or over) 50%.

I very much doubt Apple is paying more than $250, tops, for all the Intel silicon in the 17" iMac (remember, the supporting chipset is older - FW400 only).

Other components aren't priced in the article, but does anyone think Apple pays even $100 for the screen, given the quantities ordered?

Production costs for the 17" iMac must be at least $100 less than in the article - a cost of $800 would give a gross margin of almost 40%, much more in line with where Apple historically has priced its computers.

 

[PLiK]

Take a look for a good comparison of Apples to .... similar oranges at Comparison of Apple MacBook Pro to PC Core Duo Notebooks

MacBook Pro 1.67 GHz - $2,048.00

Gateway S-7510Nb 1.67 GHz - $1,972.00

- - - - - - - -

MacBook Pro 1.83 GHz - $2,548.00

Dell Inspiron 9400 1.83 GHz - $2,496.00

Acer 8204 WLMi 2.0 GHz - $2,527.00

All are Intel Core Duos
All but one are 15.4" screens
Software is somewhat taken into consideration

Then talk about Apple's pricepoint

 

[Evan_11]

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.

You have no clue how business works. Taking into account the software included (iLife $79, OS X $129), R&D, warranty etc. that $400 profit margin is next to nothing. That's not even including third party sellers.

The Xbox business model works because there is a much larger profit margin in the software. When Apple is basically giving you everything you need with the iMac they don't have that kind of revenue to hope for.

The iMac is basically a loss leader in hopes that you'll become a Mac Addict for life.

 

[Whistleway]

Software is somewhat taken into consideration

Then talk about Apple's pricepoint

Also, you gotta talk about the dell coupons and how you can buy these same dell laptops for half the price within a year. also the higher resale value of a mac should be factored in TCO.

 

[DeSnousa]

I have not read the whole thread, but the cost would be cheaper to assemble, me thinks. As Apple would be bulk buying those intel chips, cards, ram and etc. Would it not be cheaper assemble.

Apart from that, that is one expensive chip and is great to see it used by Apple in a consumer PC.

 

[ccuilla]

Selling below cost...

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.

Except...how would they make money?

This is a bad, bad, bad idea.

 

[EricNau]

Except...how would they make money?

This is a bad, bad, bad idea.

They are making plenty of money from the iPod.

 

[dongmin]

Everyone here seems to think that Price has nothing to do with their small market share. I think otherwise.

When I try and convince someone to switch, the first thing they always tell me is that Macs are too expensive. Sure I try and convince them that they are comparable, but they just don't want to spend $1300 for an iMac. I think chopping $300 off the price would increase their sales.

Apple's problem is not money, they have plenty of that. What Apple really needs is market share.

I agree with the spirit of what you're saying. Apple should sacrifice a bit of their profit margins to boost their market share. That's a no brainer. The questions is, where should Apple spend that money. On marketing? On R&D so they can come up with cooler stuff? Or on cutting prices? No one's gonna argue that Apple would sell more by chopping off $300, but the question is exactly how much in sales will they gain? And how long do you plan on instituting the price decrease? For one year? For two?

Fundamentally, Apple believes that consumers will pay the higher prices for a higher-quality product. The iPod is a good evidence in their favor. My guess is that, given this belief, Apple will never slash prices as some would suggest. They will cut costs when they can and try to lower the point of entry (mac mini, ipod shuffle), but it's "in their DNA" (to quote a Steve phrase) to not sacrifice quality and not sacrifice margins.

 

[winmacguy]

They can coast on iPod sales... 😀

Here's to the Crazy Ones ​

I have a feeling that as we see Apple selling in greater volume Intel will likely give them a better deal on the chip price much like the deal Apple currently gets with Samsung on the RAM chips for the iPod nano. The difference this time should be that Intel is able to supply the amount of chips Apple actually orders unlike IBM or Motorola 😀

 

[DeSnousa]

Cheaper costs leading to more market share does not necessarily mean a smart business move for a company, maybe in the short term but not the long term. Apple is a business and revenue is very important and for Apple to better its Mac mark and share, is not entirely on the fundamental principle of increasing sales quickly, but through other well planned steps. Apple is a smart company and they have something up their sleeves for taking over windows.

 

[angelneo]

Exactly. Apple can sell iMacs and iLife at a loss and they make it up with .Mac subscriptions and money from Photobook orders, etc. It's a win-win situation for Apple. They increase market share and make more money off iLife orders.

I disagreed with this. I think trying to sell iMac at a loss is a mistake. All the software are developed in-house and has their own R&D cost to recover. Furthermore, these softwares are updated once every year, once they are updated, the previous version would be pretty much useless to sell off. how much volume can they generate?

As for .Mac, .Mac subscriptions has its own operation cost to think of, their profit margins is also very low with all the competitors out there with their storage cost out in the open, Apple cannot afford to increase too much on those .Mac subscriptions.

 

[winmacguy]

Apple's problem with supposed 'lack' of sales of hardware hasn't always been due to lack of advertising or the products being too expensive, in recent times it has been because neither Motorola or IBM could give Apple the quantities of chips they needed to fill customer orders and both companies were not able to bring out chips with high enough clock speeds that kept up with the likes of Intel or AMD. Had IBM been able to give Apple a sufficient number of 3.0 Ghz chips in a timely matter one can only imagine what that would have done for Apple's sales and processor 'road map'. I have previously read and heard of numerous complaints of customers both on MR and on the Apple support pages who have ordered Xserves or PowerMacs only to find that they have had to wait weeks or months for the delivery of certain models because there were 'production issues' at IBM (not enough chips being produced) so Apple couldnt fill its orders. Advertising a product in short supply is only going to aggrevate an issue like this which in turn is going to be bad for Apple's business. As it is they have very rarely had problems selling the computers they could get. Hopefully with Intel this will become a problem of the past. Apple should now be able to embark on a substantial marketing program and be able to meet demand once the production is suitabley ramped up, this will inturn give Apple greater sales, more revenue with better profit margins and a growing market share.
PS I have only ever read the Economist magazine but have never studied economics 101 😉

 

[nagromme]

Re consumer Macs going Intel first:

As others have stated, this has been repeated a lot. Apple didn't publicly say anything of the sort. This started with C|Net on the Friday before the keynote, then the Wall Street Journal the next day, and finally (I think) The New York Times.

Thanks. Good detective work! I didn't think anything official was said about consumer machines going first, but if what you've posted is the "source," that's even LESS credible than I thought. And yet so often repeated as "fact"....

Exactly. Apple can sell iMacs and iLife at a loss and they make it up with .Mac subscriptions and money from Photobook orders, etc.

If you're claiming to know that things like .Mac and Photobooks can make up for selling best-selling Mac models at a LOSS instead of profit... well, maybe so and I won't claim to have the inside info that says otherwise. BUT I am willing to bet that Apple does have those numbers, in even more detail than you do 😉

(I will hazard a guess (merely a guess) that more than 50% of iMac owners never pay for either .Mac nor an iPhoto book. But if they did, are we talking big margins there?)

 

[nostaws]

I am suprised nobody mentioned this from the article:

"This cost estimate does not account for other items included in the box with the iMac, including the keyboard, the mouse and documentation."

The number of twisty ties that come with a new mac probably adds at least $99.

 

[gerardrj]

Not a $400 profit (for a different reason)

The article states it costs just under $900 to produce an iMac Duo. The MSRP is $1,299 for that machine.
There was a discussion about how $400 was a reasonable "profit" for Apple on that machine. There's no way Apple is making $400 on most of the iMacs it sells. The Reason: Apple doesn't sell most of the machines directly to end users; most machines are sold at wholesale costs to distributors who mark them up and sell them to retailers who charge the final $1,299.

There's probably about $200 in margin absorbed by the retailer and the distributor. Each entity that "purchases" the machine gets a piece of the pie that is between the manufacture cost and the MSRP. I'd guess the largest portion goes to Apple.

The cost estimate of production also does not include the packaging or shipping of the unit.

 

[snowmoon]

Everyone here seems to think that Price has nothing to do with their small market share. I think otherwise.

When I try and convince someone to switch, the first thing they always tell me is that Macs are too expensive. Sure I try and convince them that they are comparable, but they just don't want to spend $1300 for an iMac. I think chopping $300 off the price would increase their sales.

Apple's problem is not money, they have plenty of that. What Apple really needs is market share.

For anyone that has a PC, just ask them how much they have spent in time and money getting the damn thing fixed. That $300 extra ( not that it really is that much more, but that what you said ) starts to look inexpensive when you add up all the benifits of the mac ( no spyware, genius bar, iLife, ... ).

 

[EricNau]

For anyone that has a PC, just ask them how much they have spent in time and money getting the damn thing fixed. That $300 extra ( not that it really is that much more, but that what you said ) starts to look inexpensive when you add up all the benifits of the mac ( no spyware, genius bar, iLife, ... ).

I've told them that, and it makes them think, but they still aren't satisfied. People don't think that way. They see a dell on sale for $299 and don't care how much they end up spending in the long-run.

 

[AidenShaw]

Agreed, again anyone can make a laptop in plastic. Dell ships tens of thousands of them every year, but wouldn't you rather look at mac laptop any day over a dell laptop? 🙂

No, the Mac doesn't run Windows.

I buy a laptop for the software that I need, not to be a fashion queen. VPN, PDA/phone sync, Outlook, WMA/WMV, ... An Apple doesn't run what I need.

And, BTW, the "minimalist metal" look of the 'books is getting pretty old in the tooth. Time for a new look.

Just my opinion, of course....

And BT-BTW, my Dell laptop is mainly magnesium, not plastic like the iBook.

 

[sintaxi]

Exactly. Apple can sell iMacs and iLife at a loss and they make it up with .Mac subscriptions and money from Photobook orders, etc. It's a win-win situation for Apple. They increase market share and make more money off iLife orders. You agree with me, cool. 😎

Here's to the Crazy Ones ​

I think aple agrees with you. cause that is exactly what they are doing. the iMac is so cheap! the rule of thumb in retail is double your cost.

I bet the Gap makes more off selling a pair of jeans than apple makes on the iMac or mini. and they have zero resposabilities after someone leaves their store with teir product.

a xbox gameing console is useless out of the box. you HAVE to buy xbox software. they know they are going to sell an average of 5.5 games for every xbox sold. that changes everything

 

[AidenShaw]

the "former higher resale value" of Apples

also the higher resale value of a mac should be factored in TCO.

It will be at least a year or before we'll know the answer to the question "is an Apple with a 1.83 GHz Core Duo worth more than a XXXX with a 1.83 Core Duo"....

My hunch is that the answer will be "no" - Apple's taken the plunge into pure commodity hardware, and everything that that entails.

(Have you ever wondered how odd it is that "that that" is meaningful, useful English?

Or that "that 'that that'" is too?

Or that "that 'that 'that that''" can also be useful?

I think I'll stop now.... 😉 )

 

[savar]

I disagreed with this. I think trying to sell iMac at a loss is a mistake. All the software are developed in-house and has their own R&D cost to recover. Furthermore, these softwares are updated once every year, once they are updated, the previous version would be pretty much useless to sell off. how much volume can they generate?

This is a pretty ridiculous thread. Nobody here has access to the data that Apple uses to make pricing decisions and I doubt anybody has personally conducted the kind of in-depth market research that Apple does to support pricing decisions. Furthermore, there are probably very few economists in here who could really understand sophisticated price-setting/price-taking regimes. I majored in Econ and I couldn't begin to break it down.

Believe me, though, Apple pays handsomely for a staff that does market research and uses economics to recommend price points on all of their products. They set the price where they think the will maximize profit, i.e. maximize marginal profit times units sold. Cutting the prices might sell more computers, but that's not the same thing as making more money. And I don't think market share has anything to do with it either; market share is temporal: you could go from 100% to 0% in one fiscal quarter, so saying that Apple should sell at a loss to increase market share is misunderstanding what market share is.

Finally, the article linked to should be taken as nothing more than an interesting look at the parts that go into an iMac. That $898 figure is very, VERY rough. They have no idea what Apple is paying for any of those components, because Apple wouldn't work with suppliers who gave away information like that. (Its severely anti-competitive, and is probably illegal in many cases.) So they're just looking at market prices, i.e. what price has Intel published for the Duo? At Apple's volume and with Apple's pull (I imagine Intel appreciates the prestige of selling chips to Apple), Apple probably pays much less. Also, how did they estimate, for example, the cost of manufacturing the iMac case? I would imagine that its relatively expensive, but given that you can't find a case like that in any old catalog, its real tough to guess how much Apple is paying for them.

The article is clearly written by somebody who's not very tech-savvy. Apple making "graphics chips"? What a vague statment, but if they mean GPU then I don't think Apple has ever really made such a thing. (By the time such a thing as GPU was formally named, companies like ATI and nVidia were already getting big.)

But to the article's credit, I don't think they blow the profit margin thing out of proportion. Yes, Apple makes good margins. Hopefully higher than the rest of the PC industry, which is really dogging over the last 6 years. Obviously that money doesn't go straight into the execs pockets, they have to make a lot of money to cover fixed costs and pay for all the administrative labor that goes into running Apple. And if Apple does make some [or a lot] of money even after paying for all that, even then -- so what? They're a publically held corporation. They're supposed to make money. I'm not even a shareholder, but I'm glad they're making money too. I don't want them to go out of business. And at least they're not exploiting anybody to do it, and hopefully they're doing it all honestly and not doing sketchy accounting things.

Its a shame not everybody can afford one, but I'm not gonna hold it against Apple if my friends don't want to pay the premium. (If such a premium is even real...) You know, I'd like all my friends to drive lamborghini's, but I'm not gonna start a thread about how high the margins are on exotic italian sports cars.

(please note I don't drive a lamborghini, just making an example)

 

[cxny]

Price Drops Soon...

Apple has lots of goodies up it's sleeve. There is no way they spend $900 to make an iMac, they have been refining that form factor for years and have all their suppliers eating out of their hands. If JoeBlow Computers set up shop in China I'm sure it would cost them $900+ to make a crummy system but Apple can leverage all the R&D from years of building superior machines. Look how nobody can touch the iPod, it's the same for the Mac because they own it from the ground up. It's not a beige box running windowz; it's the best looking machine made, running OS X and as every Mac user knows that is worth every penny. To me the iLife suite alone is worth hundreds of dollars and that is bundled with all Macs even the Mini.

If you look back at Apples' strategy over the years the intel switch fits in to a pattern, Steve announces a whole new line of Macs that he's thrilled about. However you pay a premium to be the first in line. This year especially will see huge price drops/per unit of performance. In the next few months we'll see the first inBooks and proTowers and then by years' end we'll be seeing remarkable revisions to all the lines with 10-20% reductions in prices. This years' MW announcements were sweet but you could tell it wasn't the whole story. Stay tuned!

 

[m4r71n1]

... maybe

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...

Ever wonder if there was some a**hole at the start of this forum who was like "Oh, I know, I'll write something completely idiotic and make everyone angry and make them post hundreds of messages and waste their time" *evil laughter*?

Because I don't think ANYONE is stupid enough to believe that the amount it costs in parts is the total "cost" for Apple.

...just a thought