Inside the iPod nano

[MacRumors]

Businessweek reports on a market research firm's analysis of the iPod nano - taken apart.

According to iSuppli, the components of the 2GB iPod nano costs $90.18 in materials and $8 to assemble, leaving Apple a 50% margin before marketing and distribution costs.

This estimates a $54 price point for the 2GB Flash from Samsung. Apple reportedly struck a deal with Samsung cornering 40% of their flash production at a significant discount. Meanwhile, the same 2GB flash would cost another manufacturer $90, according to the article.

Other internal changes noted some changes in suppliers for parts providing further discounts and the return of PortalPlayer's technology to the Nano (absent in the shuffle).

 

[shadowmoses]

I am surprised they are making such a good profit margin with the Nano's i would have thought they would cost more to make, anyway they have struck a sweet deal with the memory manufacturers,

ShadOW

 

[Lacero]

Time to lower the cost of the nano in the next revision, Apple. I think $300 CDN for a MP3 player is a tad excessive. Bring it down to $150, and expect to sell 100 million units a year.

 

[Dr. Dastardly]

Man they must have gotten an insane cost on those flash drives to be able to have a 50% margin for profit.

 

[miloblithe]

Well, we're hardly talking about 50% profit here. It's not like the marketing and distribution are free. Apple has had a (for Apple) high profile TV ad campaign, and since apple has its own stores it has to pay for shipping and salaries of sales staff and rent and so on and so on.

 

[Kobushi]

I'm kind of surprised. I didn't think there was that much of a mark-up on technology. I know there isn't on the retail aspect of it, but I'm glad Apple is making a few bucks. It's nice to see apple being taken more seriously by its suppliers.

 

[1macker1]

Now that's what I call a mark up. Sheesh.

 

[Kobushi]

Well, we're hardly talking about 50% profit here. It's not like the marketing and distribution are free. Apple has had a (for Apple) high profile TV ad campaign, and since apple has its own stores it has to pay for shipping and salaries of sales staff and rent and so on and so on.

True. Often, marketing can be one of the most expensive components of a product's production.

 

[IlluminatedSage]

Looks like apple is shrewd in their business planning. The wholesale pricing from its suppliers, ie samsung for the memory and the chip suppliers, will make a big difference keeping apple price competive and with the best designs.

Apple = Long Term Winnner

and to those others naysayers, manufacturing cost is hardly all of apples cost for a product.

Look at Design, Apple Overhead, Distribution, Sales and Marketing. Apple does spend alot in marketing $$

 

[carpe diem]

Its all about supply and demand and when their is demand the price will be high.

 

[wPod]

well that seems rather obvious. apple is all about the iPod b/c of the high margins on it!!! so why would a new one be any different? i think b/c of inovations like the nano apple will continue to rule the MP3 player market for a long time, despite some predictions that the market will level out in about a year.

 

[mrgreen4242]

Somethign to consider... say there is a 50% margin now, but that has to cover the marketing, distrobution (as mentioned) AND the development of the nano.

Once the development costs are 'paid off' and the nano become popular/known so they can basically turn off nano specific ads, the price could drop and they'd keep the same actual profit levels.

This is what I expect to happen after the holiday season. As a consumer, I think it is neat to see stuff like this though.

 

[VicMacs]

yeah, I dont know how much is the net profit on the nano is but knowing apple it should be 30-40% because they charge for looks too... and I don't blame them...

oh and I'm just waiting for that price drop!

 

[FocusAndEarnIt]

I think Apple is way over charging the nano - big time. I mean come on! $150-$175? Deal. Not this $200-$250 bull crap.

 

[SiliconAddict]

Well, we're hardly talking about 50% profit here. It's not like the marketing and distribution are free. Apple has had a (for Apple) high profile TV ad campaign, and since apple has its own stores it has to pay for shipping and salaries of sales staff and rent and so on and so on.

Marketing? I haven't seen a single ad on TV for the nano. Apple doesn't need to do marketing for the Nano and I'm sorry but at 50% even with ads they are making a profit that is insanly large.

 

[Yoyodyne]

I think the commercials have been in strong rotation. I watch tv about three times a week and I've seen one every time this week. I think it has to do with what time it is and which station you are watching.

 

[czardmitri]

Marketing? I haven't seen a single ad on TV for the nano.

What?! I've seen the ad A LOT, and I don't even watch TV that much!

-czardmitri

 

[VanMac]

Glad to see that they will be making big bucks on it. Not only as a small stock holder, but as a consumer of their products as well.

 

[dernhelm]

How can anyone say they are charging too much? If you are a company with a hot product and you can't make more than you can sell, you are definitely not charging too much. Think more like an investor and less like a consumer and the product pricing right now looks dead on.

And even if it appears that they could afforably drop the price $50 per unit, what that means is less profit margin per unit. Sure they may sell more units, but that means increasing manufacturing capacity (expensive) and distribution costs. They'd likely have to sell 40% more units just to come back even in total profit. How likely is that, when you are already the largest mp3 player in the market?

Sure, as a consumer, I'd like to see the lowest cost possible, but Apple can't and thankfully doesn't think that way.

 

[Kobushi]

What?! I've seen the ad A LOT, and I don't even watch TV that much!

-czardmitri

Same here. I rarely watch TV, but I saw all 3 ads that were previewed at the music event while watching "Family Guy". Apple knows it's audience

 

[sworthy]

Come on people... besides overhead, marketing, distribution, etc, Apple invested over 9 months developing the product. After all of that is added in, "real world" margins are most likely in the 20-25% range, the same as the rest of their products.

Is 200-250 somewhat expensive for a mp3 player? Sure. Is 200-250 expensive for a FLASH based mp3 player? Not a chance. Actually, it's incredibly cheap!

 

[itsa]

Apple really is not out to make a big turn around on any of their "pods."
Their real profit comes from the contract you sign when you buy one.
What's that I hear? You did not sign a contract? ... Oh yes you did! How many millions of people have downloaded itunes after buying a pod? And how many millions of songs sell after the sales of new pods?
They could give them away and still make a big profit... but who's that dumb?

 

[iAlan]

I have seen TV adverts in Japan a couple of times and that can't be cheap.

Sure there is a mark-up, they are a company after all - and Business Week is guessing the cost of the drives as I am sure Apple and Samsung are not revealing the actual invoice price - sure Apple got a deal, but we don't know how much do we?

And no one here complains about paying $70-$100 for jeans that cost $15-$20 to make? There's a mark-up for you.

 

[Fabio_gsilva]

Come on people... besides overhead, marketing, distribution, etc, Apple invested over 9 months developing the product. After all of that is added in, "real world" margins are most likely in the 20-25% range, the same as the rest of their products.

Is 200-250 somewhat expensive for a mp3 player? Sure. Is 200-250 expensive for a FLASH based mp3 player? Not a chance. Actually, it's incredibly cheap!

Well, IMHO you can say that 200 fora a flash based MP3 player is not expensive. Ok. But, you can't say it's incredible cheap.

150 - 200 it would be a much fair price, anyway...

 

[Steamboatwillie]

I think Apple is way over charging the nano - big time. I mean come on! $150-$175? Deal. Not this $200-$250 bull crap.

Perhaps, but the fact that they are selling well shows that consumers are willing to pay. I'm sure the price will eventually drop. It has, historically, with all of the other iPods right?