Tim Cook: Component Cost Breakdowns on Apple Products Are Nowhere Close to Being Accurate

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Original poster
Apr 12, 2001
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During today's Q2 2015 earnings call, Apple CEO Tim Cook noted that Apple Watch margins are lower than the company average, and on a followup question about those margins in the context of the Apple Watch Edition's high price, Cook commented on the inaccuracy of estimated cost breakdowns on Apple products.

"I haven't seen [them for Apple Watch], but generally there are cost breakdowns around our products that are much different than the reality. I've never seen one that is anywhere close to being accurate," Cook said. He went on to say that the Apple Watch's functionality is "absolutely incredible" with a lot of new features and innovative technology.

We haven't seen cost breakdowns on the components of the Apple Watch hinting at a possible base unit price that would reveal Apple's profit margin, but such component breakdowns are often shared by analysts following device teardowns. The iPhone 6 and 6 Plus, for example, were estimated to have a parts and labor cost of approximately $200, resulting in a 69 percent gross profit margin based on the device's $649 base selling price.

iPhone 5s component cost was estimated to begin at $199, and iPad Air component cost was estimated to begin at $274. All of these estimates, which come from IHS iSuppli, include only part costs, leaving out other expenses like research and development, software creation, marketing, and distribution, which may explain Cook's comments on inaccuracy.

According to Cook, it's "intuitive" that Apple Watch margins would be lower than the company average during the first quarter, as the first quarter of any new product is "a learning period." Cook declined to provide guidance beyond the current quarter, but Apple Watch profit margins could improve in the future as component costs drop as they do over time with any new technology.

Article Link: Tim Cook: Component Cost Breakdowns on Apple Products Are Nowhere Close to Being Accurate
 

V.K.

macrumors 6502a
Dec 5, 2007
598
267
Toronto, Canada
As far as the watch profit margins I think Apple will make the most profit on the bands and not on the watches themselves.
 

keysofanxiety

macrumors G3
Nov 23, 2011
9,534
25,264
I've never seen one that is anywhere close to being accurate," Cook said. "The actual costs are much cheaper." (/s)
 

goobot

macrumors 603
Jun 26, 2009
5,764
2,511
long island NY
For as long as I can remember, people seem to think R&D is free.
It's not free but it's not a lot for Apple since they sell a lot of the same products. And yes I caculated it from the R&D numbers Apple actually gives.

Anyway have the numbers for the watch been posted anywhere yet?
 

Tubamajuba

macrumors 68020
Jun 8, 2011
2,100
2,120
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It's not free but it's not a lot for Apple since they sell a lot of the same products. And yes I caculated it from the R&D numbers Apple actually gives.
How about on a new product like the Apple Watch?

And beyond R&D, you have labor and facility costs along with all sorts of miscellaneous expenses that nobody seems to account for.
 

Poochi

macrumors 6502a
Jul 30, 2010
875
236
Toronto
How about on a new product like the Apple Watch?

And beyond R&D, you have labor and facility costs along with all sorts of miscellaneous expenses that nobody seems to account for.
like Apple's executive compensation? For Tim, Angela and co? :)
 

Tankmaze

macrumors 68000
Mar 7, 2012
1,662
276
Apple watch preorder exceed any blackberry phone sales in a year ;)
Even though they have low margin, its still good business when they sell a lot.
 

RamGuy

macrumors 6502a
Jun 7, 2011
941
1,054
Norway
One thing I have always found funny is how various web-sites claims to figure out the overall cost of a devices by looking at the components etc..

First of, how do they even begin to measure this in the first place? Do they go by standard pricing for each component or are they doing some creative guess work in order to be smart about what Apple might pay for the various components? Because I can tell you for a fact that Apple do not pay regular prices for things like NAND, Sony camera modules etc that goes into their products as they are ordering hundreds of millions of these things..

No one is capable of knowing what kind of agreements that goes into making orders as huge as these, they are by far the largest in the industry.


You also have to take into account all the R&D that goes into each and every product, it's software, firmware, drivers etc.. Compared to the various other companies Apple is mostly doing all their work themselves in-terms for software development. Whereas Sony, Samsung etc.. Get their software delivered by Google, with most drivers and firmware as a part of Android. Apple is actually doing all this work themselves. They do of course have to do some optimisation and whatnot but it's not remotely close to amount of work Apple needs to put in as they are running their very own software, and they also like to have a hand in developing all kinds of drivers and firmwares for the various hardware as well.

They also need to drift the entire ecosystem with App Store etc.. Something Google is handling for the various other OEM's out there in-terms of Android.
 

Squeak825

macrumors 6502
Sep 5, 2007
377
237
Apple watch preorder exceed any blackberry phone sales in a year ;)
Before this gets propagated, that is most likely not true.

We don't know the preorder sales from the Apple Watch, but anything less than 5Mil and we know Blackberry wins that bet.
 

bmc205

macrumors newbie
Jul 31, 2014
4
13
And a big one: manufacturing
This is not a direct factor in the cost of their devices. Why? Because Apple doesn't manufacture any of the parts in their devices. The cost they pay for components that are manufactured for them would have the manufacturing costs built into the price of the component.

It's a common misconception that there is such a thing as an "Apple part". There are parts that Apple has manufactured by other companies that meet their specific quality and performance standards, but there is no such thing as an "Apple part".
 

icanhazapple

macrumors 6502
Feb 26, 2009
466
821
no, people are just speculating on a Bill of Material (BoM)

Nothing wrong with speculating that the BoM on the watch is $200 USD, that's probably accurate. A BoM does not take into account any other factors of production, it's not within its scope.

These factors are generally amortized throughout the lifetime of the product, as efficiencies are realized (people get more efficient at producing it, decreased R&D costs through yearly incremental upgrades)

I ignore everything that comes out of Cook's mouth - they're just words.
 

flat five

macrumors 603
Feb 6, 2007
5,577
2,654
newyorkcity
This is not a direct factor in the cost of their devices. Why? Because Apple doesn't manufacture any of the parts in their devices. The cost they pay for components that are manufactured for them would have the manufacturing costs built into the price of the component.

It's a common misconception that there is such a thing as an "Apple part". There are parts that Apple has manufactured by other companies that meet their specific quality and performance standards, but there is no such thing as an "Apple part".
so you don't consider these 'apple parts'?


 

dfs

macrumors 6502
Sep 17, 2008
333
155
California
I would be very curious to hear a "cost breakdown" that would explain why the stainless steel expansion band costs $450. This strikes me as being almost psychotically extravagant. Lotsa third party alternatives are going to appear. Maybe Speidel will sell one in the $75 - $50 range.
 

laurim

macrumors 68000
Sep 19, 2003
1,925
864
Minnesota USA
This is not a direct factor in the cost of their devices. Why? Because Apple doesn't manufacture any of the parts in their devices. The cost they pay for components that are manufactured for them would have the manufacturing costs built into the price of the component.

It's a common misconception that there is such a thing as an "Apple part". There are parts that Apple has manufactured by other companies that meet their specific quality and performance standards, but there is no such thing as an "Apple part".
I would call hiring someone to build a product part to your custom specifications being YOUR part. Apple isn't buying parts off the shelf. Besides, manufacturing includes putting all those parts together, plus the packaging design and manufacturing and any licensing fees required to be able to use other people's patents right down to fonts and images.
 

Tubamajuba

macrumors 68020
Jun 8, 2011
2,100
2,120
here
$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.
And those statistics have absolutely nothing to do with Apple Watch margins. Unless I'm missing the part where Tim Cook says that all of Apple's products have low margins?

Sometimes you just have to bend really far backwards to complain, I guess.
 

AppleScruff1

macrumors G4
Feb 10, 2011
10,026
2,948
And those statistics have absolutely nothing to do with Apple Watch margins. Unless I'm missing the part where Tim Cook says that all of Apple's products have low margins?

Sometimes you just have to bend really far backwards to complain, I guess.
And sometimes defend no matter what. :) Not to mention that the article states Apple products, not just the watch.
 
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