iPad Air Component Costs Estimated to Begin at $274, Roughly 13% Cheaper Than iPad 3

[Poisonivy326]

There are costs of developing software like iOS, iWork, iLife, etc.

iOS's (and all other Apple apps') profit margins are actually covered by their App store, iTunes, the Cloud, and other software.

What this really boils down to is lack of competition in the tablet market. The iOS ecosystem for phones has competition in Android but there's no real competitors for the iOS tablet ecosystem ... yet. When there are real competitors in the tablet market I think you'll see Apple's pricing for the ipad become less aggressive.

 

[Taz Mangus]

Hmm yes, that does make sense. Though I wish the cell model was only $50-$100 more. Perhaps the models will get more popular (and thus cheaper) with T-Mobile's free data plan...

The cell models also don't add any to the resale/trade-in value. I guess because the people buying used iPads don't care/don't use it.

I don't forsee Apple charging less for the cell model unless people stop buying it. Apple responded by dropping the price of the 1st generation rMacBook Pro when sales were not doing as well as Apple expected. I seem to remember that they dropped the price by about $200 at that time.

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iOS's (and all other Apple apps') profit margins are actually covered by their App store, iTunes, the Cloud, and other software.

What this really boils down to is lack of competition in the tablet market. The iOS ecosystem for phones has competition in Android but there's no real competitors for the iOS tablet ecosystem ... yet. When there are real competitors in the tablet market I think you'll see Apple's pricing for the ipad become less aggressive.

I think we might see the same thing with Apple tablets that Apple did with the iPhone 5S and 5C. I think the name change from iPad to iPad Air is the setup for a product line shift to come.

 

[Iconoclysm]

Still doesn't justify 1GB RAM and 16GB base storage in 2013. Moreover they charge $100 for additional 16GB storage which costs them next to nothing. The top-end model is nearly twice the cost of the base model for just more storage and LTE. There's no denying its just a business decision, they'll include 2GB RAM next year and call it revolutionary, magical and other fancy words.

You do realize that RAM constantly sips on the battery right? The less you use, the longer your battery life - this is a constant, no way around it. Storage is another story, the more you have the more worthwhile the cost.

 

[garylapointe]

Apple could have doubled the space and still kept higher margins than last time.

16gb for $500 is ridiculous for 2013.

Yeah, they'll never sell any at that price

Gary

 

[Renzatic]

You do realize that RAM constantly sips on the battery right? The less you use, the longer your battery life - this is a constant, no way around it. Storage is another story, the more you have the more worthwhile the cost.

This is true, but the amount of power ram consumes doesn't make for that profound a difference in battery life. You could max out all 4GB on an MBA, and you'd still get around 12-13 hours so long as you're not hammering the CPU.

The amount used by extra ram is easily mitigated by any improvements made to the processor.

 

[kobalap]

I can't imagine that Apple does not have a wholesale price that they give to the retailers selling Apple products. What incentive does Target have to sell a WiFi iPad with they don't make any profit from that sell.

Precisely.

My only point being, whatever the wholesale price that Target pays, its is definitely higher than the aggregate per unit price that it costs Apple to build the unit.

Take this example specifically... let's it costs Apple $285 for parts and assembly of each iPad. Let's say that each iPad has to pay $15 for other costs (R&D, administrative, shipping to end location, etc.). That's a total cost of $300.

If Target wants $100 to sell each iPad, that only leaves Apple $99. For that $99, Apple has to provide phone support and also an infrastructure to deal with warranty issues.

See, what most of these threads don't ever talk about is that Apple the manufacturer doesn't sell directly to consumers. They sell to retailers (I am assuming that there are no "distributors" that are part of the chain. If there were, that would be another entity that would want some sort of profit from the endeavor.) Most people see the BOM cost of a product and automatically assume that the difference between retail price and BOM cost equals the money that Apple pockets.

It just doesn't work that way.

 

[Iconoclysm]

This is true, but the amount of power ram consumes doesn't make for that profound a difference in battery life. You could max out all 4GB on an MBA, and you'd still get around 12-13 hours so long as you're not hammering the CPU.

You're referring to a laptop, not a device like this where standby is also using a lot of the battery power. Really, not a good comparison - but if you want to take a look at other tablets, you'll find the iPad has the better battery life with less RAM.

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Precisely.

My only point being, whatever the wholesale price that Target pays, its is definitely higher than the aggregate per unit price that it costs Apple to build the unit.

Take this example specifically... let's it costs Apple $285 for parts and assembly of each iPad. Let's say that each iPad has to pay $15 for other costs (R&D, administrative, shipping to end location, etc.). That's a total cost of $300.

If Target wants $100 to sell each iPad, that only leaves Apple $99. For that $99, Apple has to provide phone support and also an infrastructure to deal with warranty issues.

See, what most of these threads don't ever talk about is that Apple the manufacturer doesn't sell directly to consumers. They sell to retailers (I am assuming that there are no "distributors" that are part of the chain. If there were, that would be another entity that would want some sort of profit from the endeavor.) Most people see the BOM cost of a product and automatically assume that the difference between retail price and BOM cost equals the money that Apple pockets.

It just doesn't work that way.

The worst part of that is that they're under the impression that companies should not make money...or that they're being ripped off. In my experience with Apple's prices vs. their competitors, I'm getting what I paid for. The true "Apple Tax" on any of these products is so small I can't see it.

 

[Renzatic]

You're referring to a laptop, not a device like this where standby is also using battery power. Really, not a good comparison.

And standby doesn't use power on a PC?

All things considered, the difference between an iPad and a computer are about nil. They use the same parts in much the same way. The biggest difference is in the OS, which is considerably more streamlined, but still works off the same basic infrastructure.

 

[speedyaxon]

Not to take away from your very valid point ...

But they don't sell it at that price. Retailers do.

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I worked at Best Buy for many years. I can tell you that Best Buy made almost nothing ($10 or less) on iPads. The money was made a bit more on the accessories and especially the service plans. For the little margin the store would make on an iPad, they'd go out of business very quickly if that's all they sold.

 

[kobalap]

They do, though it's likely not as much as you'd think. Maybe to the tune of $5-$10 per unit sold. With everything tallied together (admittedly, I'm doing head-math off big rounded numbers here), I'd say Apple is making roughly a 20% profit off every iPad sold by day three.

There is no way that a retailer like Target or Walmart or Best Buy makes only $5 or $10 per unit. No way.

The lowest margin products in any retail establishment fetches at last 10% margin. Consumer electronics traditionally fetch 35-50% margin. When you buy that fancy Denon receiver for a $1000 from any certified dealer, that unit cost them no more than $650 to buy. More likely, no more than $600.

If Best Buy is paying Apple $400 per unit on that iPad and selling it it for $499, Best Buy has a 20% margin on that product. I don't know any retailer, be it electronics or otherwise, who could survive on that low margin.

 

[Renzatic]

If Target wants $100 to sell each iPad, that only leaves Apple $99. For that $99, Apple has to provide phone support and also an infrastructure to deal with warranty issues.

I'll tell you right now that Target doesn't take $100 off the top of an iDevice. At the very most, they make about $20 off each unit sold.

iPads are prestige items. They're in high demand, and they bring people into their stores. That makes it a give and take situation. They want their cut, sure, but they're not gonna demand such a high price that it scares Apple away from them.

If Best Buy is paying Apple $400 per unit on that iPad and selling it it for $499, Best Buy has a 20% margin on that product. I don't know any retailer, be it electronics or otherwise, who could survive on that low margin.

Apple plays a slightly different game than other manufacturers. They want their high margin, and they rarely ever give out wholesale discounts. It's one of the many reasons why they're not big in IT.

Like I said above, they're a prestige item. Better for being a draw to the store than an item sold for pure profit. This is why Apple makes considerably larger amounts of money than any other computer manufacturer in the market. Like everyone says here, Apple only covers 10% of the PC spectrum, yet accounts for 45% of the profits. They don't do this by being cheap, or cutting into their bottom line to get their products on everyone's shelves.

 

[kobalap]

I worked at Best Buy for many years. I can tell you that Best Buy made almost nothing ($10 or less) on iPads. The money was made a bit more on the accessories and especially the service plans. For the little margin the store would make on an iPad, they'd go out of business very quickly if that's all they sold.

The partner discount for Apple products is 7-8%. Are you telling me that I can buy an iPad for less than what Best Buy's wholesale price is simply because my employer signed up for some discount program?

Come on.

 

[speedyaxon]

There is no way that a retailer like Target or Walmart or Best Buy makes only $5 or $10 per unit. No way.

The lowest margin products in any retail establishment fetches at last 10% margin. Consumer electronics traditionally fetch 35-50% margin. When you buy that fancy Denon receiver for a $1000 from any certified dealer, that unit cost them no more than $650 to buy. More likely, no more than $600.

If Best Buy is paying Apple $400 per unit on that iPad and selling it it for $499, Best Buy has a 20% margin on that product. I don't know any retailer, be it electronics or otherwise, who could survive on that low margin.

I just posted this as I've worked at BBY for many years. They made less than $10 per iPad. Just about every other product (receivers, tv's, etc) are different, having much more margin. Apple products are very, very low margin and you have to, as a salesman, push the accessories to make up for it.

 

[Bare]

MacBook Pro R-Type / Quad 2.6GHz Core i7 / 2880×1800 / 16GB / 512GB SSD
Canon 7D w/grip / 24-105L / 100-400L / Pro9000 MkII Printer
64GB iPhone 5 / 64GB iPad Mini Retina / 8GB iPhone

You don't have a 64GB iPad Mini Retina...

 

[speedyaxon]

The partner discount for Apple products is 7-8%. Are you telling me that I can buy an iPad for less than what Best Buy's wholesale price is simply because my employer signed up for some discount program?

Come on.

Have you worked there? We had no employee discount on iPads, as there was such a small difference between what the store got them in for and what they were sold for.

It was our worst nightmare when people would buy naked iPads (nothing else in their basket) because it meant basically no profit for us on that sale. We'd have to work that much harder on the next sale to make up for that.

 

[kobalap]

I'll tell you right now that Target doesn't take $100 off the top of an iDevice. At the very most, they make about $20 off each unit sold.

iPads are prestige items. They're in high demand, and they bring people into their stores. That makes it a give and take situation. They want their cut, sure, but they're not gonna demand such a high price that it scares Apple away from them.

iPad and iPhone are not the same thing.

When you buy an iPhone and sign up the customer for service, there is compensation coming from the service provider. Cell phones can be and are sometimes sold under cost because the money is made up somewhere else.

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Have you worked there? We had no employee discount on iPads, as there was such a small difference between what the store got them in for and what they were sold for.

It was our worst nightmare when people would buy naked iPads (nothing else in their basket) because it meant basically no profit for us on that sale. We'd have to work that much harder on the next sale to make up for that.

Ok, whatever. Best Buy sales people "working hard". If you knew cost of an iPad, you would have posted it already. And if you actually knew cost, you wouldn't lump t.v.s and receivers in the same bucket.

And by the way, unless you worked as the buyer for Best Buy, you have no clue what Best Buy actually paid.

 

[Renzatic]

iPad and iPhone are not the same thing.

When you buy an iPhone and sign up the customer for service, there is compensation coming from the service provider. Cell phones can be and are sometimes sold under cost because the money is made up somewhere else.

Only when they're subsidized through a telco. If you buy an iPhone direct from Apple, Verizon, or Wal-Mart off the shelf at full price, they're comparable.

 

[speedyaxon]

Ok, whatever. Best Buy sales people "working hard".

I know, right? But it was stressful to have the managers pushing us all the harder when they saw empty baskets with iPad sales.

Bash BBY all you want, doesn't matter to me. I'm glad I got out and am moving on with my education. And it most certainly was not an enjoyable experience for me being a salesperson.

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And by the way, unless you worked as the buyer for Best Buy, you have no clue what Best Buy actually paid.

Well, I could see the "cost" of the item in our system, our break-even point. The rule was if we went below that, we were taking it in the shorts. I have to assume that is the price BBY paid or very close to it. Our discount was always that plus a certain percentage. In this case, $0, since it brought it above the retail price.

 

[Taz Mangus]

as there was such a small difference between what the store got them in for and what they were sold for.

And that is why Costco no longer sells Apple products. Though Sams Club still does sell them and discounted too.

 

[speedyaxon]

iPad and iPhone are not the same thing.

When you buy an iPhone and sign up the customer for service, there is compensation coming from the service provider. Cell phones can be and are sometimes sold under cost because the money is made up somewhere else.

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Ok, whatever. Best Buy sales people "working hard". If you knew cost of an iPad, you would have posted it already. And if you actually knew cost, you wouldn't lump t.v.s and receivers in the same bucket.

And by the way, unless you worked as the buyer for Best Buy, you have no clue what Best Buy actually paid.

Obviously I don't know the cost down to the dollar, if you want to be nitpicky, since I left BBY over a month ago and have since forgotten and stopped caring whether it's $8, 9, or $10 margin we'd make at most. You get the idea, I hope.

I wasn't lumping TV's or receivers in the same bucket, that's the idea (hence why in my original statement I said they were different, as in, different from iPads). We made good margins on those, unlike iPads.

 

[Tiger8]

The cell models also don't add any to the resale/trade-in value. I guess because the people buying used iPads don't care/don't use it.

That, my friend, is the result of having three horrible cell phone companies call the shots. You have to give up your first born and get a second mortgage if you dare and ask for data for casual use for the iPad.

In the UK for example, cell enabled iPads are popular, since data service is much more affordable there (you can get a sim that you only activate on days you need).

I am really hopeful T-Mo's new plan will change things.

 

[Taz Mangus]

I am really hopeful T-Mo's new plan will change things.

Probably not a good idea to mention the T-Mobile deal in this thread. There is enough complaints in two other threads not to start another here.

 

[kobalap]

Well, I could see the "cost" of the item in our system, our break-even point. The rule was if we went below that, we were taking it in the shorts. I have to assume that is the price BBY paid or very close to it. Our discount was always that plus a certain percentage. In this case, $0, since it brought it above the retail price.

Manufacturers usually have pricing tiers depending on quantities bought. In the case of Walmart, Best Buy, Target, etc, they usually get the best wholesale pricing giving the sheer volume at which they buy. What Best Buy shows their employees in the POS (point of sale) systems is does not have to reflect reality.

If Best Buy was only making $5 per unit on an item that they are paying $494 for, they are essentially making a 1% profit. Think about that. A finance guy will tell you right off, it doesn't make sense. Because if you buy let's say $1,000,000 of inventory and only make 1%, you will lose just on interest alone.

Of course, Best Buy could be buying on consignment... Best Buy doesn't pay for inventory for let's say 90 days. That means that Apple has millions of their dollars sitting on Best Buy's shelf. That adds to Apple's cost. Again, interest.

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Only when they're subsidized through a telco. If you buy an iPhone direct from Apple, Verizon, or Wal-Mart off the shelf at full price, they're comparable.

When you buy an iPhone from best buy at $99, best buy might not make money on that deal. Even lose money. But some money is coming back from the carrier.

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Obviously I don't know the cost down to the dollar, if you want to be nitpicky, since I left BBY over a month ago and have since forgotten and stopped caring whether it's $8, 9, or $10 margin we'd make at most. You get the idea, I hope.

I wasn't lumping TV's or receivers in the same bucket, that's the idea (hence why in my original statement I said they were different, as in, different from iPads). We made good margins on those, unlike iPads.

TVs don't have good margins. If you manage or own an audio/video retail shop and all you were able to sell were TVs, you would crap your pants because it won't be long before you go out of business.

 

[Renzatic]

If Best Buy was only making $5 per unit on an item that they are paying $494 for, they are essentially making a 1% profit. Think about that. A finance guy will tell you right off, it doesn't make sense. Because if you buy let's say $1,000,000 of inventory and only make 1%, you will lose just on interest alone.

I edited my post above to catch another reply of yours that explains this somewhat.

But to give you the digest version, Apple doesn't play the same game that Dell, Samsung, HP, and the rest do. Retailers don't make as much off Apple as they do the abovementioned, and use them more as a draw to get certain customers into their stores rather than selling them for a hefty chunk of change.

They do get something out of carrying Apple products, but it's more an indrect advantage in comparison.

 

[macduke]

You don't have a 64GB iPad Mini Retina...

I changed my signature because I sold my iPad 2 32GB. Since I'm lazy I went ahead and added it while I was in there. Though I just picked up some more work so I'm going to get the LTE now. Guess I should go change it again!