iPad Air 2 Material Costs Hold Steady Starting at $275, but New Storage Tiers Erode Profit Margin

Discussion in 'MacRumors.com News Discussion' started by MacRumors, Oct 28, 2014.

  1. MacRumors macrumors bot


    Apr 12, 2001

    As it always does with Apple's major new iOS devices, research firm IHS iSuppli has torn down the new iPad Air 2 in an attempt to estimate Apple's component costs for the device (via Re/code). According to IHS iSuppli's estimates, the 16 GB iPad Air 2 costs Apple roughly $275 to build, just one dollar more than last year's iPad Air.


    The report unsurprisingly points out that Apple benefits from stronger profit margins as users move to higher capacity models, with Apple paying only about $50 more for 128 GB of storage compared to the base 16 GB configuration while charging users $200 for the upgrade. Still, Apple's move to eliminate the 32 GB option and slide the 64 GB and 128 GB models down $100 has slightly eroded Apple's profit margins at the top end.
    Many of the components have remained the same between the iPad Air and the iPad Air 2, with Apple's use of essentially the same display unit allowing the company to reduce costs of that component from $90 to $77. But with Apple's move to bond the display to the device's cover glass and the addition of a new antireflective coating, the same display offers a significantly better user experience.

    Other changes include the move to a powerful new A8X chip currently unique to the iPad Air 2, and improved cameras that have resulted in slightly higher component costs.

    As always, it is important to note the estimates from IHS iSuppli cover only the cost of the individual components that make up the device and do not include other costs involved in product development, manufacturing, and sales, such as research and development, software, patent licenses, marketing, and distribution expenditures. All of these costs contribute to significantly reduce Apple's true profit margin from the levels cited by IHS, but the basic component cost remains an interesting glimpse at how Apple brings everything together to consistently hit its retail pricing goals.

    Article Link: iPad Air 2 Material Costs Hold Steady Starting at $275, but New Storage Tiers Erode Profit Margin
  2. Michaelgtrusa macrumors 604

    Oct 13, 2008
  3. Apple... macrumors 68020


    May 6, 2010
    The United States
    Guess that explains why they kept the 16GB model. :-/
  4. Zxxv macrumors 68040

    Nov 13, 2011
    Engineers need paying. Else they go work for the competition. Factor that into the profits.
  5. Amacfa macrumors 68000


    May 22, 2009
    Ram and storage. Why does 16gb exist? Many of my not-so-techie friends simply didn't update their iPhones because they had no space!

    On an iPad it makes even less sense.
  6. AppleWarMachine macrumors 65816


    Sep 27, 2011
    Michigan, US
    A better product for a dollar more (to Apple), nice :)
  7. KPOM macrumors G5

    Oct 23, 2010
    I'm guessing the 16GB exists to upsell people to the 64GB and preserve the profit margins.
  8. sanke1 macrumors 65816


    Nov 9, 2010
    How much adding 1 extra GB of RAM erode Apple's profit?

  9. Acorn macrumors 68020


    Jan 2, 2009
    not really sure what the point of this article is. That is component costs only. apple has a ton of people they have to pay over that. so its not really that much per device.
  10. Crosscreek macrumors 68030


    Nov 19, 2013
  11. MasterRyu2011 macrumors 65816

    Aug 22, 2014
    Exactly. It's the same argument used against certain restaurants --- that if it only costs 2 bucks to make this sandwich, why am I being charged $9? Of course, no one thinks about the other costs that can make it possible (labor, research, overhead, etc.)
  12. Rogifan macrumors Core


    Nov 14, 2011
    Really? The point is to make Apple look like greedy you know whats. People see the estimated BOM and compare it to the MSRP and think they're being gouged.
  13. icerabbit macrumors regular

    Jul 2, 2006
    I am holding off upgrading until there's 2GB of RAM by default, and possibly 32GB as base as well. I'm certainly not getting the mini 3 retina, which I looked forward to, but Apple just had to merely make it a mini 2 with a glued on touch id button.

    Anyhow, it doesn't make sense to me get slightly faster response time but be hampered by the same 1GB of RAM and still have constant reloading issues, out of memory crashes, ...
  14. GlenK macrumors 6502a


    Aug 1, 2013
    St. Augustine, FL
    I want the 64 but in holding pattern right now on the vibration issue.
  15. gnasher729 macrumors P6


    Nov 25, 2005
    Of course these people would get the shock of their life if they went to their local supermarket and someone showed them the cost of materials of all the things they buy every day. How much do you think is the wax and the wick for a candle that sells for £20? Or how much do you think is the BOM for a Christmas card?
  16. Iconoclysm macrumors 68020


    May 13, 2010
    Washington, DC
    Pff, yeah, on some forum somewhere...definitely not in the real world.


    Virtually zero, but that's why we all know that cost isn't the issue...at least anyone with half a brain and deductive reasoning.
  17. Harrisonppr macrumors newbie

    Oct 28, 2014
    It does have 2gigs of ram, bud. And the 64gb of storage for only $100 more is a pretty solid deal, IMO.
  18. gotluck macrumors 603


    Dec 8, 2011
    East Central Florida
    Its more so that apples bom is usually lower than the competition
  19. dalupus macrumors regular

    Jul 19, 2011
    Hmm sandwich research....

    I think I am going to go research a fish sandwich right now.

    But yes I always get a kick out of people complaining that companies are ripping people off because the underlying components are much cheaper. I guess shirts should retail for about 5 cents since that is what the cotton used to make them cost. :)
  20. Chupa Chupa macrumors G5

    Chupa Chupa

    Jul 16, 2002
    It seems this report makes is abundantly clear why a 16GB model exists -- because Apple wants to keep a $499 price point entry level model, which isn't possible if they drop the model. Consumers can decide from there if they want more storage for more money.
  21. gnasher729 macrumors P6


    Nov 25, 2005
    When do you ever see information about Apple's competition? Nobody cares about the BOM of an Acer tablet. I'd also like to see an example where that actually happened.
  22. doelcm82 macrumors 68040


    Feb 11, 2012
    Florida, USA
    I'm holding off until they move the headphone jack 2.37 mm to the left.

    Or until I need a new iPad. Whichever comes first.
  23. MartinAppleGuy macrumors 68020


    Sep 27, 2013
    *were ;)
  24. iosuser macrumors 6502a

    Mar 12, 2012
    Had Apple upped the base to 32GB, I'd definitely have saved myself the $100 on the iPhone 6 and the Air 2. Had they kept the middle tier at 32GB, I'd probably have just bought the base 16GB version. Oh yeah Apple knows exactly what they're doing.

    I do find it curious that the extra 112GB (from 16 to 128GB) costs $50. I mean I can buy a 128GB SSD for $60 regularly now, in a retail packged drive vs just buying bare chips in the iPad. That $50 figure doesn't seem to add up...
  25. numlock, Oct 28, 2014
    Last edited: Oct 28, 2014

    numlock macrumors 68000

    Mar 13, 2006
    stop the paranoia.

    most people have jobs and realize and know that there are more things that go into products and prices than just the purchase prices of parts.

    the mass consumer is not reading articles like this and even they would understand that not all expenses are included in "material cost".

    not acer but here are two for amazon.


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