Breakdown of Costs in an Intel iMac

[dguisinger]

missing the point

I haven't seen anyone hit it on the head yet; so as someone who builds hardware that goes through distribution:

Apple - Profit
Ingram Micro - Profit
MacMall - Profit

Each of these companies will want a minimum of between 10-15% margins, manufacturers try to keep margins of 30% for themselves. Obviously in boxed systems, that is no longer realistic, but the fact is each company needs to make money on down the line.

We aren't talking Dell who has absolutely no distribution chain, we are talking Apple with regulated prices on their entire distribution chain. Apple can't sell lower than what their resellers sell for or risk lawsuit. And the only way to bring the reseller's end pricing down is to lower someone's margins........all 3 companies want their hands in the cookie jars and they should, after all, each is selling the product before it hits the end user (other than Apple direct sales), if they were all in the business of giving things away they wouldnt exist much longer.

 

[BenRoethig]

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're assuming the only reason everyone isn't buying iMac is cost. Let me put it this, how many all in one machines outside of Apple have had any kind of success?

 

[Peace]

You're assuming the only reason everyone isn't buying iMac is cost. Let me put it this, how many all in one machines outside of Apple have had any kind of success?

What makes you believe the new Intel iMac isn't selling well ?

 

[BenRoethig]

I wish Apple just sold a intel Mac compatible logic-board so You can build Your own Mac, that way Apple still makes money on home built Macs.

Would be nice if Apple would allow intel to make compatible ATX and MATX boards based on the 945G/P/GT chipsets, but I don't see it happening. First, Apple likes having total control and giving the consumer what they think they need. Second, they're under the delusion that if the option wasn't available, they'd buy an iMac or PowerMac instead.

 

[eroyce]

...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...

I'm sorry to be rude (and likely this comment will show up as #150 so no one will ever read it anyway), but I have to correct you here. Variable costs are those costs associated with producing each unit, fixed costs are those spread across the entire company. Example: R&D and marketing are fixed costs. The more units you sell, the cheaper these costs are per product, but the overall cost stays the same. Motherboards are variable costs, the more units you produce the more motherboards you have to buy.

Just wanted to make sure the correction of economic terms was made.

 

[igxqrrl]

I'm sorry to be rude (and likely this comment will show up as #150 so no one will ever read it anyway), but I have to correct you here. Variable costs are those costs associated with producing each unit, fixed costs are those spread across the entire company. Example: R&D and marketing are fixed costs. The more units you sell, the cheaper these costs are per product, but the overall cost stays the same. Motherboards are variable costs, the more units you produce the more motherboards you have to buy.

Just wanted to make sure the correction of economic terms was made.

You may be correct in terms of a strict economic definition.

However for the sake of this discussion the $900 per machine is a fixed cost. If there were no other costs associated with marketing, development, and distribution Apple would make a $400 profit. However any sales and marketing costs come out of that $400. I'm referring to the $900 as fixed because it cannot be changed. I'm referring to the other costs as variable because they can easily be changed.

Thanks for the correction, though. Your definition does make sense when you look at the company with all its product lines rather than breaking down the sale of a single product.

 

[shawnce]

What makes you believe the new Intel iMac isn't selling well ?

I think you are reading his statement wrong. He wasn't implying that the iMac is selling poorly but the opposite... that Apple is the only company that has been successful at selling an all-in-one system, despite the perception that it is expensive compared to the competition.

 

[24C]

I haven't seen anyone hit it on the head yet; so as someone who builds hardware that goes through distribution:

Apple - Profit
Ingram Micro - Profit
MacMall - Profit

Each of these companies will want a minimum of between 10-15% margins, manufacturers try to keep margins of 30% for themselves. Obviously in boxed systems, that is no longer realistic, but the fact is each company needs to make money on down the line.
...snip...

Thanks for this😀 , I've just scrolled through the whole thread to see if someone had mentioned this. Incidentally in the UK the margins/discounted from Ingram Micro to a well known retailer were 7% of SSP, before deducting the cost of their own 'free' extended warranty and the special returns clause!

For the record, Xerox (circa 1980) used to estimate that a $1000 machine had to sell at $6000 retail, Ford cars in the UK had a five times mark up on manufacturing costs in the 80's at the point of sale in the dealership. Nowadays things aren't that good, and as others have mentioned the retail clothing chains have the best 'apparent' markups now

 

[mdavey]

I wish Apple just sold a intel Mac compatible logic-board so You can build Your own Mac, that way Apple still makes money on home built Macs.

They do, you just need to find a friendly repair center.

 

[kadajawi]

About those thinking about a loss-leader strategy... it may work with game consoles, it may work with the iPod, but I couldn't see how it works with Macs. With what actually is Apple supposed to make money with? How much software does the average user need on his Mac? A lot is supplied already. And if he needs something more, chances are big enough that he buys the software from Microsoft, Adobe or some other company. Bad idea if you ask me.

But R&D costs, costs for the software etc. for Apple is not per piece. If Apple sells one iMac for $100.000, they would not make any money cause all the R&D etc. would have to be carried by the iMac. If they could reduce price and sell so much more iMacs that they would get more profit... although I'm pretty sure Apple has thought over this already.
But Apple is not Dell... Apple has a image. Which it has to maintain. It's more of a premium company. Funny things have happened when Motorola dropped their prices for the Razr V3, people got mad at them because they thought it would remain its high price and be a premium product showing status. There are quite a few people who wouldn't buy anything from Motorola anymore... at least nothing expensive. Things are more worth when they are expensive, even if they are not. I don't know what would happen if the would lower the prices too much. People may think like in the case of Motorola... Nokia is clever. They have a few luxory products which they keep at a rather high price level.

But if Apple would reduce prices they would gain a bigger market share, which may make software manufacturers develop software for them. Difficult, difficult...

 

[kadajawi]

About DIY Macs... Although I would love to have one, I can't see that happening.
It's already possible to do build machines which can run MacOS X, or at least will be in the near future when Core Duo compatible boards will hit the street. But Apple doesn't want that, as you can see.
Probably a problem would be to find truely compatible hardware anyway. I guess there aren't too many drivers.

But what I would love to see would be a Mac, coming just with a motherboard, a MacOS X box and a case. That way you simply choose by yourself what components you build in, maybe you have something spare lying around... and you still get a nice, elegant casing. Or at least a Mac somewhere the price of a Mac Mini, maybe a bit more, in a real casing, where you can use PCI components etc., which can be upgraded. Some sort of PowerMac Mini in the sense of a cheap version.

 

[mdavey]

But what I would love to see would be a Mac, coming just with a motherboard, a MacOS X box and a case. That way you simply choose by yourself what components you build in, maybe you have something spare lying around... and you still get a nice, elegant casing.

Yea, an "Intel Mac mini, expert edition" would be nice. Logic board, riser card and Mac OS X disc, unassembled in a nice Apple carton. Just add processor, heat sink HDD, optical drive, memory and a case.

Make the three-part case (includes the black plastic mid-assembly), PSU brick, Bluetooth, internal modem and Airport as ATO options (where 'A' stands for 'Add' 😉).

Problem is, it wouldn't be much less than an assembled Mac mini. I can't see it happening either, but it is a nice idea. Buffalo did something similar with their LinkStation, making the Revolution Kuro Box (archive.org).

 

[kadajawi]

It would be ok if it isn't costing less than the normal Mini. Sometimes I just have to fiddle with my hardware and upgrade it here and there. And I would love to continue using my beloved Audiotrak soundcard. I need something extendable, not neccessarily extremely small (not at all), but I can't afford a PowerMac. So I'm stuck to using Wintel (actually LAMD right now, though I want to switch to Lintel sooner or later... Core Duo I'm coming 😀 ).
Actually all I would need would be a MacOS X license to run on non Macs. That would be great. The rest I can do on my own.

But no way that would come... 🙁

 

[Svennig]

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

Okay, lets talk about it (and deal with your straw man at the same time). I love apple hardware, but I hate windows and I'm more of a Linux fan than an OSX user. If I bought a macbook pro, I'd install Linux on it. So lets take off those superfluous and misleading added costs of Adobe Elements ($149) and MacAffee 15 months ($79) (this is a HARDWARE comparison, not a software one).

So we're back to the Acer 8204 WLMi's original price of 2299. The macbook pro 1.8 (2499) costs almost 8% more, but you get almost 9% less processor speed. You get _half_ (50%) the RAM. You get 17% less hard drive space. You get a poorer-resolution screen. You get a camera built in, but unlike the Acer, its not tiltable and is therefore less practical.

Before any of you start flaming me, I'm sitting at my desk with my 14" 1.42GHz iBook open next to me. I LOVE apple hardware. But people who say that it isn't overpriced and underspecced are smoking something.

 

[kadajawi]

Uhm, but you get all the software like MacOS X and iLife etc. Ok, you don't need it, but it's there, and it costs Apple money.
It's like taking a PC with a QuadroFX and saying oh, the PC is expensive, compared to a similar PC with integrated graphics. I could do with integrated graphics. So the QuadroFX PC must be overpriced...

 

[BenRoethig]

I think you are reading his statement wrong. He wasn't implying that the iMac is selling poorly but the opposite... that Apple is the only company that has been successful at selling an all-in-one system, despite the perception that it is expensive compared to the competition.

Actually, I'm saying all in ones are a niche market and Apple already has the lions share that niche. Even with decreased price, you're not going to see too many more units sold. While they are amazing machines and are price competitive, they have some compromises in the design compared to a a full or Micro ATX tower that many are just unwilling to make.

 

[gekko513]

Okay, lets talk about it (and deal with your straw man at the same time). I love apple hardware, but I hate windows and I'm more of a Linux fan than an OSX user. If I bought a macbook pro, I'd install Linux on it. So lets take off those superfluous and misleading added costs of Adobe Elements ($149) and MacAffee 15 months ($79) (this is a HARDWARE comparison, not a software one).

So we're back to the Acer 8204 WLMi's original price of 2299. The macbook pro 1.8 (2499) costs almost 8% more, but you get almost 9% less processor speed. You get _half_ (50%) the RAM. You get 17% less hard drive space. You get a poorer-resolution screen. You get a camera built in, but unlike the Acer, its not tiltable and is therefore less practical.

Before any of you start flaming me, I'm sitting at my desk with my 14" 1.42GHz iBook open next to me. I LOVE apple hardware. But people who say that it isn't overpriced and underspecced are smoking something.

I agree, the Acer is a nice deal. Especially in pure features on the hardware side. But I'd still say that the MacBook competes very well for those who value a smaller and lighter laptop and for those who value the software. The MacBook is certainly not rudely overpriced.

 

[Svennig]

Uhm, but you get all the software like MacOS X and iLife etc. Ok, you don't need it, but it's there, and it costs Apple money.
It's like taking a PC with a QuadroFX and saying oh, the PC is expensive, compared to a similar PC with integrated graphics. I could do with integrated graphics. So the QuadroFX PC must be overpriced...

You get windows with the Acer, and that costs them money. Not as much (probably - we have no idea what overhead OS-X and iLife incurr as OEM pricing doesnt exist), but it's there. And you can guarantee so's an aweful lot of other programs (some that you want, some that are just annoying like the free trial of AOL that seems to be a requirement for OEMs these days).

My argument was that, while both come with software, it wasn't necessary to spend such a vast amount of money on commercial equivalents. Free (Open Source) antivirus, firewall, image manipulation (and a million other) programs exist for windows AND Linux AND Mac OS-X.

If most of the difference in cost is down to OS-X and iLife (etc) applications for the mac, how many people are going to buy mac hardware when OS-X intel gets cracked for grey box machines? How many people are going to go out and buy a better specced, lower priced machine and install apple software (either pirated or legitimately purchased and then hacked)?

In fact, while I'm here, lemme take a stab at some costings

1 Gig of ram on crucial's website is $147
The cheapest 120GB notebook hard drive I can find is $270
The cheapest 100GB notebook hard drive I can find is $145
So the increase in hard drive costs $125 (assuming volume pricing for both drives scales in a similar manner, and the respective volumes are roughly equal)
Lets make a leap and suggest that theres a $100 dollar difference between the 2 ghz (bleeding edge) chip and the 1.8 thats in the macbook.

So comparing spec for spec, the Acer should cost almost $400 more than the macbook. But, instead, it costs $200 _less_

Does iLife and OS-X cost $600? For that matter, does R&D given that both companies have basically used Intel's reference design?

How long until OS-X is hacked, someone buys that and iLife for (what, $300 dollars?) and saves $300 on their laptop?

 

[kadajawi]

Hm. But you are not taking into account the casing, the design etc. And MagSafe, which sounds like a really good idea (having seen my father kill a TV because he tripped over some cable).
And I doubt if the free alternatives are that good, and especially as easy to use.
I would say that both, the MacBook Pro and the Wintels are interesting. The Wintels are cheaper and may offer more power, but the MacBook Pro offers better software, design etc. It really depends on what your priorities are.

 

[asphalt-proof]

Its funny but before I got my first mac (2003 BM- before mac) I would scan the ads looking as PC's and compare the specs to a mac. It was always a bit discouraging but I finally settled on buying an iMac G4. I have never looked as another PC ad since. Seriously, the perceived 'higher cost' was mitigated by the ease of use, the iLife software suite, and the lack of virii. I will gladly pay the higher margins when it comes time to replace my iMac.

 

[ack_mac]

Going back to the originial article, even the author implies that he doubts Apple is paying $265 per processor and mentions that Jobs/Apple are very strong negotiators..

For the sake of argument, lets just pretend that Apple is paying about $200 per processor. As for research and development costs with the new iMac, how much was there? It is basically the same iMac with a different processor. If you watched the keynote it was pretty clear to me that both Apple and Intel contibuted equally to getting Intel procs into the Macs. So Apple research, development, and testing costs were most likely split with Intel on this.

It is no secret that Apple keeps their profit margins on their products under a very tight lid, but I would not be surprised if they made closer to $500 per iMac and about $800 on the Macbook Pro. But Apple also has award winning support, some of the best designers in the world, a world class opertaing system and software (Tiger and iLife), and is an innovator. Those things cost money...

As for keeping this strictly a hardware discussion, I think that you absolutely have to factor in the OS and the software that comes with each new Mac. You are not paying for just the hardware, you are paying for OS X too, and I don't know about you but the only reason that I own a Mac is not for the hardware specs and how great it looks. It is for OS X....

That, to me, is worth an extra $200 versus a Dell with Windows XP Home addition anyday....

 

[scottlinux]

and the lack of virii.

For the millionth time, the plural of virus is viruses.

 

[kadajawi]

You are not paying for just the hardware, you are paying for OS X too, and I don't know about you but the only reason that I own a Mac is not for the hardware specs and how great it looks. It is for OS X....

Same here. Well, at least thats the reason why I want a Mac. My blue box is working in another room, so it's quiet, and I don't see it. I can (and like to) assemble my systems myself, and am my own tech support 😉 What I want is a system which doesn't get on my nerves and can run the software I need. Therefore only real reason to buy a Mac is the OS.

 

[Jadeite312]

hasnt the xbox lost over a billion dollars so far? Thats not what one would consider a good business model. Last i read microsoft got paid 5 dollar royalty for each game sold but they still lost over a billion dollars. Nintendo sells there system at a profit and make money over every game sold. Im not to sure about sony but it seems like now they are selling systems at a profit but at the begining were selling them at a loss.

 

[ack_mac]

hasnt the xbox lost over a billion dollars so far? Thats not what one would consider a good business model. Last i read microsoft got paid 5 dollar royalty for each game sold but they still lost over a billion dollars. Nintendo sells there system at a profit and make money over every game sold. Im not to sure about sony but it seems like now they are selling systems at a profit but at the begining were selling them at a loss.

Microsoft came to the dance pretty late with the Xbox. We will have to see what happens with the 360.

Anyway, I am not sure that comparing Apple's business plan with the game consoles business plan is a smart for Apple anyway. Last time I checked, Sony and Nintendo's stock was in the toilet, and Microsoft's stock has not done anything in a couple years...

I think Apple is wise to continue to be a niche player that makes beautiful looking machines that run their OS very well. Just about any consumer can afford a Mac now if you look across the lineup and Apple offers something for everyone from a high end graphics designer to a grandmother who just wants to surf the net, check email, and have photos of her grandchildren...

I think Apple is going to be laughing in a few years when the rest of America starts to figure out that there is an alternative to Windows, and that it works really great with their iPod too 🙂