Gruber: Apple TV is Sold at Cost, HomePod at Slight Loss

[MikeSweden]

That’s probably the worst BS I have heard in a while. At cost or loss. Get real. I had to check if it was April 1.

It’s a speaker and some microphones. It can’t even land on the moon. It’s not that good either compared to other high end speakers.

 

[theluggage]

So how much does it cost to supply 1m A10 chips when you’ve already supplied 50m to make phones and iPads? It’s probably pretty dirt cheap

Wow. 7 pages of comments and one person “gets it”!

Prices of electronic devices and components are subject to huge economy-of-scale effects, because the development and tooling up costs are huge vs. the raw materials, all the way down the supply chain, let alone the sort of discounts a huge player like Apple can probably win.

Any proclamation based in trying to estimate the bill-of-materials cost of a mass market electronics product is hogwash unless the claimant had access to highly commercially confidential information about contracts between Apple and its suppliers - and that’s likely need-to-know information even amongst Apple employees. Best you can do is a maximum price - if you could build a one-off for about the same ballpark price, then they’re probably not selling below marginal cost: how much R&D and tooling costs they expect to recoup from each sale is a piece of string (and probable depends on whether it’s the taxman or a shareholder asking).

That Apple make a loss on a product that sells for 2x the price of comparable competition is an extraordinary claim that needs extraordinary evidence. “A little bird told me so” or looking up the component prices in the RS catalogue doesn’t cut it. It’s more plausible that the Amazon and Google alternatives are, shall we say, not intended to be money-makers in their own right, because those firms primary businesses are shopping and advertising, and $50 retail of Rasperry Pi kit will do the job of a chrome cast, but only they know if they are literally making a loss.

 

[pika2000]

Same. I never bought the explanation retailers sell computers at cost or a loss either.

Depends. Often times, especially during major sales or black Fridays, retailers can be selling stuff at near cost or at a loss, with the hope that they gain from accessories and extended warranties (there's a reason big box retailers are pushing extended warranties and expensive cables).

 

[ksec]

Ok then let’s ignore Gruber and apply your methodology.

iPhone 6S Plus BOM cost: $232, selling price $749. 31%

iPhone 7 BOM cost: $220, selling price $649. 34%

iPhone 8 BOM cost: $248, selling price $699. 35%

iPhone 8 Plus BOM cost: $288, selling price $799. 36%

iPhone X BOM cost: $370, selling price $999. 37%

So although BOM cost has been edging up slightly over the years, it’s roughly 35% (for iPhone).

What does that tell us about HomePod? Well the BOM cost has been estimated at $216. If you use typical iPhone margins, the HomePod should be selling for about $615.

We know Apple’s hardware gross margin—not to be confused with BOM cost—is about 34%. So total cost of HomePod would be about $406 (66% of $615).

So regardless of Gruber, it does appear that Apple sells HomePod at a loss. BOM cost would have to be about $122 (34% of $349) for Apple to be making their average gross margin on HomePod.

1. It is not 3x% margin, it is 6x% margin.

2. HomePod BOM cost aren't even anywhere to $216.

 

[PickUrPoison]

1. It is not 3x% margin, it is 6x% margin.

2. HomePod BOM cost aren't even anywhere to $216.

1) What do you mean?

2) If you do a little research/googling as you suggest, that’s what you’ll find. (HomePod BOM cost)

https://www.bloomberg.com/news/arti...-speaker-costs-216-to-build-techinsights-says

https://techinsights.com/about-techinsights/overview/blog/apple-homepod-teardown/

 

[Rogifan]

Rene has apologised very very hard for Apple on multiple occasions.. he is nothing but an Apple stooge I’m afraid and not fair in the slightest. He runs his own Apple fan website.
Mac Rumors writers, and certainly 9to5mac are far far far more critical of Apple then Rene ever has been.
John Gruber is just a worst example of Rene IMO, he’s only good for leaks sometimes.

I might agree with you about 9to5Mac but MR doesn’t have opinion writers. They allow negativity because it drives website traffic.

 

[Kabeyun]

There is no way Apple sells anything at cost or slight loss. Try again. lol

Well, they do give away a bunch of very good apps, included with their OS (also free), such as the iWork suite. I find them very good, and I’m happy to use Pages, Keynote, and Numbers for free instead of Microsoft Offuce for $130.

 

[Rogifan]

I think you’re a mugg if you believe what Gruber is claiming here, Apple has always had a tradition of selling goods at marked up value, and those devices are not worth the money at cost, Apple is charging for them.

You have no idea what Apple does. Most of Apple’s hardware has gone up in price yet gross margins are consistently 38% or so. And this is with higher margin services being a greater percentage of overall revenues. That says to me their current products are more expensive to make and as Apple isn’t a charity those costs will get passed onto the consumer.

 

[MoreRumors?]

Gruber can spin this all he wants and I don't believe a word he says. Only people at the upper management at Apple knows how much it costs to make a product and the mark up price.

 

[HMFIC03]

Well, the HomePod is really good speaker. I just wish Siri to be on par with Alexa or Google.
Having said that, I do not believe Apple sells it for a loss. May be for less profit, but not loss.

I’d buy another HomePod if its alarm could be used with music. I can’t believe that functionality has not been built.

 

[Novus John]

#IWantToBelieve but we all know that it's not true.

Apple does not sell products at or below cost unless said products are totally a flop and Apple is trying to empty inventory. Another problem with his nonsensical claims is that Apple TV is basically an A10 processor attached to an hdmi output, it's the same processor they've put in tens of millions of other iOS devices. The Apple TV and the HomePod also sell for double or more the price of competing products.

People need to stop believing in everything that Gruber says. He's just some dude with an Internet blog, it's just graffiti with punctuation.

 

[Aaargh!]

Well, the HomePod is really good speaker. I just wish Siri to be on par with Alexa or Google.

I just wish they made a cheaper HomePod without Siri.I just want a good-quality AirPlay speaker for a reasonable price. IMO voice controlled computers are just a dumb idea. Talking to Siri (or Alexa, or Google) never stops feeling weird, awkward and impractical.

 

[I7guy]

...Or maybe they need to find a less greedy CEO that price their products more according to reality.

Like Jobs? Who overpriced the iPhone 1?

 

[smoking monkey]

Lol... If the HomePod was too good of a product, it would have the ability to play my iTunes library. It doesn't and that is a total joke. I simply couldn't and still can't believe Apple released a speaker i can't just play my own music through?

Say what!?!?
haha... So if I bought one and only wanted it to play my own iTunes library on, I couldn't? That's insane.
So it only plays music via Apple Music? Wow. I had no idea. I was actually thinking about getting one for this exact reason, to play my music via itunes. Stuff that then...

 

[Shanghaichica]

Say what!?!?
haha... So if I bought one and only wanted it to play my own iTunes library on, I couldn't? That's insane.
So it only plays music via Apple Music? Wow. I had no idea. I was actually thinking about getting one for this exact reason, to play my music via itunes. Stuff that then...

You can airplay your iTunes library from a Mac if you have one or subscribe to iTunes Match. Any content you’ve purchased from iTunes can be played without a subscription.

 

[theluggage]

2) If you do a little research/googling as you suggest, that’s what you’ll find. (HomePod BOM cost)

No, if you do a little research you'll see that Techinsights provide absolutely no justification for the component prices that they cite, nor do they explain how they could know what prices Apple (who buy electronic components in 'better-build-a-new-factory quantities', and who's consumption of commodities like flash memory is a major influence on market prices) have negotiated for those components. In any case, the whole BOM issue is pretty much moot without factoring in up-front R&D and tooling costs and somehow knowing how rapidly Apple need/plan to recoup those.

...and on that, I'm inclined to believe him, because it makes sense.

Best you can say from those figures is that the Homepod uses more expensive components than the Amazon or Google equivalents... which you could guess by walking into your local electronics store and picking the things up.



From the Bloomberg article:

Apple Chief Executive Officer Tim Cook commented on component breakdowns in 2015 during an earnings call by stating he has “never seen one that is anywhere close to being accurate.”

OK, he would say that wouldn't he - but what he's saying makes sense whereas Bloomberg/TechInsight's claims don't: Amazon/Google are shopping/advertising companies who have every incentive to sell smart speakers and STBs at low margins, if not as loss-leaders, to promote those services (I have an Amazon Fire TV, and although its certainly better value than an ATV it leaves you in no doubt that it is primarily a cash register for Amazon) - Apple's business is still selling high-margin hardware (services only about 13%) and predominantly iPhones at that - they've no need to take a hit on Homepods and ATV when they're aimed at people who've already shown their willingness to drop $1000 on an iPhone.

 

[BODYBUILDERPAUL]

I love my Apple TV 4k. I bought it on release date. I'm not buying for a second that it costs them $180 to make it when Roku and others distribute products that essentially do the same at a fraction of the costs.

I have a hard time buying the same with the Homepod considering the cost of its competitors. Not to mention that speaker products are notoriously high margin products.

But does the Roku have a processor in it as good as the A10X? A processor of that standard isn't cheap!

 

[compete12]

So, let me get this straight....the same company that sells you a $2500 laptop and still dings you another $20 for a USB dongle is selling stuff at a loss?

It's 2019. Nice to see their 2016 implementation of USB-C really took the computer industry by storm.

I gotta find a new homepage. I can't stand reading this stuff anymore. Sheisters.

 

[apolloa]

You have no idea what Apple does. Most of Apple’s hardware has gone up in price yet gross margins are consistently 38% or so. And this is with higher margin services being a greater percentage of overall revenues. That says to me their current products are more expensive to make and as Apple isn’t a charity those costs will get passed onto the consumer.

Apple is not a charity, but to claim it sells anything at a loss or for cost is farcical at best, more so when it comes from an apple stooge who gets personal invites to buy Apple launch events, and, like you, is unable to back any of the claims up with proof. I am going by Apple’s MO as a business.

 

[nt5672]

I think maybe get rid of Ive and their cost will drop by what? 50%.

 

[webbuzz]

Gruber likes to hear himself talk.

 

[Phone Junky]

You can airplay your iTunes library from a Mac if you have one or subscribe to iTunes Match. Any content you’ve purchased from iTunes can be played without a subscription.

What about music in iTunes that I didn't purchase from iTunes? My whole library is music I ripped from CDs.

 

[PortoMavericks]

#IWantToBelieve but we all know that it's not true.

Apple does not sell products at or below cost unless said products are totally a flop and Apple is trying to empty inventory. Another problem with his nonsensical claims is that Apple TV is that it's basically an A10 processor attached to an hdmi output, it's the same processor they've put in tens of millions of other iOS devices. The Apple TV and the HomePod also sell for double or more the price of competing products.

People need to stop believing in everything that Gruber says. He's just some dude with an Internet blog, it's just graffiti with punctuation.

Yeah, but he has deep connections inside Apple, like how could other blogger get two Apple executives on his talk show? He's their PR.

 

[Shanghaichica]

What about music in iTunes that I didn't purchase from iTunes? My whole library is music I ripped from CDs.

Airplay from your Mac or subscribe to iTunes Match.

 

[PickUrPoison]

No, if you do a little research you'll see that Techinsights provide absolutely no justification for the component prices that they cite, nor do they explain how they could know what prices Apple (who buy electronic components in 'better-build-a-new-factory quantities', and who's consumption of commodities like flash memory is a major influence on market prices) have negotiated for those components. In any case, the whole BOM issue is pretty much moot without factoring in up-front R&D and tooling costs and somehow knowing how rapidly Apple need/plan to recoup those.

...and on that, I'm inclined to believe him, because it makes sense.

Best you can say from those figures is that the Homepod uses more expensive components than the Amazon or Google equivalents... which you could guess by walking into your local electronics store and picking the things up.



From the Bloomberg article:


OK, he would say that wouldn't he - but what he's saying makes sense whereas Bloomberg/TechInsight's claims don't: Amazon/Google are shopping/advertising companies who have every incentive to sell smart speakers and STBs at low margins, if not as loss-leaders, to promote those services (I have an Amazon Fire TV, and although its certainly better value than an ATV it leaves you in no doubt that it is primarily a cash register for Amazon) - Apple's business is still selling high-margin hardware (services only about 13%) and predominantly iPhones at that - they've no need to take a hit on Homepods and ATV when they're aimed at people who've already shown their willingness to drop $1000 on an iPhone.

If you don’t think the BOM estimate is correct, that’s fine. And I’m not vouching for its accuracy. But IHS Markit has made a business of providing this data to manufacturers, mainly for competitor cost analysis it seems. If these companies didn’t have faith in the supplied data, they wouldn’t pay for the service, and IHS Markit wouldn’t be in business.

In any case, OP’s point was that people were arguing “for Apple saying they sold at cost, without going through a little research or googling how this is far from truth.” So I took him up on the challenge. Based on the available data, I think my analysis can withstand scrutiny. I’m willing to listen to any data driven arguments against it, but the reality is we’ll never really know, because Apple won’t tell.