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Inside the iPod nano
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Overcharging? Huge profits? Some of you really can't do math and just don't understand a business model, do you?
The BW article states that materials and assembly costs alone of the $199(MSRP) 2GB model are $98 (which, as a result of significant discounting by the parts suppliers due to economies of scale, is roughly $36 less than any other competitor can match). Now, add in packaging costs; shipping costs from the manufacturing point to regional warehouses; storage costs; distribution to retailers; marketing & advertising costs; research & development costs for the next new model; and you've got to factor in a portion of Apple's daily costs of doing business with every product they sell (ie: employee salaries/benefits, office space, taxes, utilities, office supplies, etc.). On top of all that, don't forget the significant factor that most of the previous posts failed to mention: Resellers purchase the product from Apple at a wholesale price (not the retail price) so they can earn a profit on sales to consumers at the MSRP. And, of course the retailers have a whole slew of their own costs to cover as well, so the difference between the wholesale and retail price is not just gravy.
Sure, many iPod sales are direct from Apple.com or Apple retail stores (both points of sale that also have their own costs to cover), but Apple can't undercut their direct-to-consumer retail selling price to take unfair advantage over 3rd party resellers (there's laws against that sort of thing).
So, actual net profit for Apple is only a few bucks per sale, and maybe a few more bucks if sold directly by Apple instead of via 3rd party retailers. But, without those 3rd party resellers, Apple would miss out on tons of sales. So, it's obviously better to make a few dollars per-item on lots of sales through all resale avenues than to make more dollars per-item on fewer number sales through direct sales alone.
If anyone is still thinking Apple is overcharging, feel free to find an equal or better product at a lower or similar price from any other manufacturer or reseller. Good luck with that.
Class dismissed. 🙄
PS: I've seen TV ads for the nano dozens of times on network and cable channels during the past couple of weeks, and not just during prime time. And, for me to have spotted the ads this many times even with all the commercial-skipping I do with my DVR, they must be saturating the airwaves with ads. If only they'd do the same with the Mac mini and iMac!
The BW article states that materials and assembly costs alone of the $199(MSRP) 2GB model are $98 (which, as a result of significant discounting by the parts suppliers due to economies of scale, is roughly $36 less than any other competitor can match). Now, add in packaging costs; shipping costs from the manufacturing point to regional warehouses; storage costs; distribution to retailers; marketing & advertising costs; research & development costs for the next new model; and you've got to factor in a portion of Apple's daily costs of doing business with every product they sell (ie: employee salaries/benefits, office space, taxes, utilities, office supplies, etc.). On top of all that, don't forget the significant factor that most of the previous posts failed to mention: Resellers purchase the product from Apple at a wholesale price (not the retail price) so they can earn a profit on sales to consumers at the MSRP. And, of course the retailers have a whole slew of their own costs to cover as well, so the difference between the wholesale and retail price is not just gravy.
Sure, many iPod sales are direct from Apple.com or Apple retail stores (both points of sale that also have their own costs to cover), but Apple can't undercut their direct-to-consumer retail selling price to take unfair advantage over 3rd party resellers (there's laws against that sort of thing).
So, actual net profit for Apple is only a few bucks per sale, and maybe a few more bucks if sold directly by Apple instead of via 3rd party retailers. But, without those 3rd party resellers, Apple would miss out on tons of sales. So, it's obviously better to make a few dollars per-item on lots of sales through all resale avenues than to make more dollars per-item on fewer number sales through direct sales alone.
If anyone is still thinking Apple is overcharging, feel free to find an equal or better product at a lower or similar price from any other manufacturer or reseller. Good luck with that.
Class dismissed. 🙄
PS: I've seen TV ads for the nano dozens of times on network and cable channels during the past couple of weeks, and not just during prime time. And, for me to have spotted the ads this many times even with all the commercial-skipping I do with my DVR, they must be saturating the airwaves with ads. If only they'd do the same with the Mac mini and iMac!
andiwm2003
macrumors 601
shamino said:
but since i'm not planning to do video editing on a 12"PB that's designed for portability i'll go with the 40GB flash powerbook.
my relevant data and programs total at 10gb today with 9 gb being the system and programs. so the amount of data doesn't really go up for me. it's only my pictures, movies, music that eats up hd space. but on a pb for work i don't need them (not all of them).
I've lost count of how many times I've edited it out of my EyeTV recordings in the past couple weeks.czardmitri said:
Mike Teezie
macrumors 68020
It would be much more interesting to find out what they make in real life. But what we don't count in is all the extravaganza around the iPod, because it's not just iPod, it's APPLE. Without iPod, Apple would have had a much weaker grip at the market.
rainman::|:|
macrumors 603
-50% markup is not out of the question for electronics. Think about cheap-to-produce items like USB hubs and keyboards, there's markups of several hundred times the production cost.
SiliconAddict
macrumors 603
blufire said:
Also assuming they could even GET extra chips. For all we know meeting demand on the 2 and 4GB nanos is outpacing Samsung's ability to create the memory chips. Also of note is this:
http://arstechnica.com/reviews/hardware/nano.ars/4
Appl may simply have been forced to limit the max size of the nano to 4GB.
SiliconAddict
macrumors 603
rainman::|:| said:
Yah but I've never spent $250 on a USB hub before either. Its one thing when such a markup cost a person $10, maybe $20 But at 50% on something that costs the price of an iPod? The term highway robery comes to mind. Part of me really wishes someone WOULD come out with a good solid product against the iPod that sells well. Apple knows they have pwaned everyone else out there and as such can get away with the price point and markup without loosing any sleep over it.
cheekyspanky
macrumors 6502a
zv470 said:
How accurate this is I'm not too sure..but..
http://www.fool.com/community/pod/2004/041015.htm
After removing the iPod, Apple's gross margins on its Mac + software/services products are 29%. After accounting for peripherals + services sale, let's say that the various product lines are at an average of 27.5% gross margin.
That means the gross income for the main product lines are
iPod -> $107.4M
PowerBook -> $115.2M
PowerMac -> $93.5M
iBook -> $70.4M
iMac/eMac -> $59.4M
If anything, the numbers underestimate the PowerBook because it should have higher margins than the iBook or the eMac. Even with that, the PowerBook remains the most profitable (i.e. making money) product line for Apple. That will change if the iPod does indeed reach 3 million+ units per quarter, but it isn't true today.
neonart
macrumors 65816
SiliconAddict said:
The iPod has been priced "higher" than competitors since it was introduced. Reviewers gave Apple hell for the $399 original Apple saying it was too much and that competitors had better prices. They did it again when the Mini came out. Apple did not back down and we now see the results.
Now Apple has enough leverage to make great profit and sell a flash based player that can't be beat by others on any level (including price)- but people still complain about prices.
People would never have opinions like these if they actually knew (and felt) how expensive it is to run a business.
notjustjay
macrumors 603
Ok, I'm a bit confused here; Business Week's guys may have a better idea what they're doing but not two weeks ago ZDNet runs this article saying that even with a below-going-rate discount on flash memory, Apple's pratically selling the Nano at a loss, and for the flash memory to be as cheap as iSuppli is saying, Samsung would have to be selling Apple flash storage almost at a loss.
The ZDNet claims Samsung is selling wholesale flash storage at $45/GB, and that's a 45% markup. That equals $49.50 per 2GB just to manufacture, where iSuppli is claiming Apple's getting the stuff for $54; that would mean a 9% markup over cost, which is viciously thin no matter how you look at it--would Samsung really be willing to go that low?
Of course, you can also look at this article, which is claiming that the Nano is so cheap it's seriously cheesing off Korean flash-based-player manufacturers, since there's no way they can match the price, and this article which is saying that other players in the Taiwanese market have had their prices slashed to compete. So even if Apple's margins are a little large, they're certainly not out of synch with the rest of the market--if anything, it's cheap, though that may be because Apple is letting Samsung take all the pain.
Worth noting that ZDN implies the Mini has margins in the same percentage region as BW is saying the Nano does, so even if correct there'd be little change from before. And also worth remembering that that's just the margin over manufacturing cost Apple does; in their last quarter Apple made about 9% profit on their gross income, which is a little high but not terribly unreasonable. Contrast with Microsoft, who made a 26.5% profit in the same quarter, even with their money-loosing divisons.
The ZDNet claims Samsung is selling wholesale flash storage at $45/GB, and that's a 45% markup. That equals $49.50 per 2GB just to manufacture, where iSuppli is claiming Apple's getting the stuff for $54; that would mean a 9% markup over cost, which is viciously thin no matter how you look at it--would Samsung really be willing to go that low?
Of course, you can also look at this article, which is claiming that the Nano is so cheap it's seriously cheesing off Korean flash-based-player manufacturers, since there's no way they can match the price, and this article which is saying that other players in the Taiwanese market have had their prices slashed to compete. So even if Apple's margins are a little large, they're certainly not out of synch with the rest of the market--if anything, it's cheap, though that may be because Apple is letting Samsung take all the pain.
Worth noting that ZDN implies the Mini has margins in the same percentage region as BW is saying the Nano does, so even if correct there'd be little change from before. And also worth remembering that that's just the margin over manufacturing cost Apple does; in their last quarter Apple made about 9% profit on their gross income, which is a little high but not terribly unreasonable. Contrast with Microsoft, who made a 26.5% profit in the same quarter, even with their money-loosing divisons.
mojohanna
macrumors 6502a
Yes, but it gets spread over all units sold.Kobushi said:
The industry I am in, many of the manufacturers we work with typically get 50% or higher. In fact one will hardly consider bringing a product to market unless they realize 85% raw margin (COGS versus sell price)
mojohanna
macrumors 6502a
No way net profit is 30-40%. Taking out all of Apple's fixed costs (buildings, plants, equipment, etc) and its variable costs (salaries, benefits, etc) my guess is that Apple's net profit is between 10-15% on the high side. When you factor in other product lines that have lower margins you probably end up right around 10%. (A simple check of the financials that Apple has to publicly report would give the exacts I am simply using an educated guess here)VicMacs said:
powerbook911
macrumors 601
Yes, Apple is not making anywhere near what has been suggested by some. Keep in mind that retailers have to make money on selling this product. Apple sales the product to retailers at a substantially lower cost. Of course, that means Apple's margins are slightly higher on iPods they sell direct, but they have expenses, when it comes to retail, so that extra bit is really offset by what it costs them to have an online store, and 100+ retail stores.
Makosuke said:
Keep in mind that it's a zero-sum game. The more Apple negotiated to purchase, not only did they lower the puchase price, but they *raised* the price for everyone else at the same time.
So with pretend round numbers, lets say 2GB of flash had a market driven price of $75. Apple agrees to buy 50% of capacity at a price of $50 each. With less supply for the market, the price goes *up* for everyone else to $100.
Meanwhile Apple could sell the unit for profit at a price below competitor's cost, but market demand for the product increases the optimal price for profit to $200.
And while Apple spends $$$ on marketing, the iPod is getting huge amounts of free press and word of mouth PR as well as a *huge* push by the iPod economy...think about it, 30% of new car buyers next year are going to be asked if they would like an iPod to be integrated with their car. 0% of new car buyers will be asked if they would like a competitive product to the iPod to be integrated.
Apple's market share for the iPod is going to increase for the forseeable future...not by much because there's only so much higher it can get, but it will certainly remain up there for a long, long, time.
dongmin
macrumors 68000
I always find it amusing when people take this moralist, indignant tone when talking about Apple products It's a bloody mp3 player--a lifestyle, luxury item. If you can't afford it, don't buy it. No one is forcing you. We're not talking about gasoline here.SiliconAddict said:
Point #1
From Apple's point of view, they should charge as high a price as the market can tolerate. That's called business. Why in the world should Apple lower their margins to some arbitrary level??? To gain more marketshare? To boost their stock? Why?
Point #2
In any event, I think it's a fair price. The 1GB shuffle goes for $150. For $50 more, you get a color screen, the click wheel, the ability to display photos, AND a 1GB more. I'd say it's a steal when compared to any other flash player on the market.
Point #3
Apple does not make 50% profit on the Nanos. The 50% figure only includes manufacturing costs. The only meaningful way to digest these numbers is to compared them to the manufacturing costs and margins of other electronics and computer products. The final price doesn't really say much about whether Apple's making a killing or not.