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

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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.
The latest report from the research firm IHS, due later today and shared exclusively with Re/code, shows that the base model of the iPad Air 2, the 16-GB Wi-Fi version, which sells for a price of $499, costs $275 to build, exactly one dollar higher than the previous base model. The top-end model, the 128-GB LTE version costs which sells for $829 costs $358.

Apple's implied profit margin on the iPad Air 2 has dropped slightly to a range for 45 percent to 57 percent depending on the device, compared with the original at 45 percent to 61 percent.
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
 

Zxxv

macrumors 68040
Nov 13, 2011
3,558
1,102
UK
Engineers need paying. Else they go work for the competition. Factor that into the profits.
 

KPOM

macrumors P6
Oct 23, 2010
15,390
3,834
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.
I'm guessing the 16GB exists to upsell people to the 64GB and preserve the profit margins.
 

sanke1

macrumors 65816
Nov 9, 2010
1,067
434
How much adding 1 extra GB of RAM erode Apple's profit?

THE WHOLE WORLD WANTS TO KNOW!
 

Acorn

macrumors 68030
Jan 2, 2009
2,554
284
macrumors
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.
 

MasterRyu2011

macrumors 65816
Aug 22, 2014
1,064
359
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.
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.)
 

Rogifan

macrumors Core
Nov 14, 2011
21,830
27,278
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.
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.
 

icerabbit

macrumors regular
Jul 2, 2006
122
29
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, ...
 

gnasher729

Suspended
Nov 25, 2005
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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.
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?
 

Iconoclysm

macrumors 68020
May 13, 2010
2,424
1,674
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The ram issues are people's biggest concern.
Pff, yeah, on some forum somewhere...definitely not in the real world.

----------

How much adding 1 extra GB of RAM erode Apple's profit?

THE WHOLE WORLD WANTS TO KNOW!
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.
 

Harrisonppr

macrumors newbie
Oct 28, 2014
2
0
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, ...
It does have 2gigs of ram, bud. And the 64gb of storage for only $100 more is a pretty solid deal, IMO.
 

dalupus

macrumors regular
Jul 19, 2011
132
0
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.)
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. :)
 

Chupa Chupa

macrumors G5
Jul 16, 2002
14,834
7,394
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.
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.
 

gnasher729

Suspended
Nov 25, 2005
17,123
4,146
Its more so that apples bom is usually lower than the competition
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.
 

doelcm82

macrumors 68040
Feb 11, 2012
3,566
2,523
Florida, USA
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, ...
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.
 

iosuser

macrumors 6502a
Mar 12, 2012
964
703
I'm guessing the 16GB exists to upsell people to the 64GB and preserve the profit margins.
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...
 

numlock

macrumors 68000
Mar 13, 2006
1,590
88
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.
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".

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.
not acer but here are two for amazon.

http://www.pcmag.com/article2/0,2817,2461620,00.asp
http://www.techhive.com/article/243531/report_79_amazon_kindle_costs_84_to_make.html
 
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