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

[krazifour]

Yes, the silicon bands must have an insane margin... Molded silicon like that could cost less than a dollar, so in total, the bands cost maybe a couple dollars to make. Don't understand why apple didn't make them cheaper so they could be 'collectable' and spark more sales.

Also, I really don't want to see (for $ sake) an Apple watch band with an embedded battery becauseu that'd cost more than the watch itself. And then I'd have to buy one.

 

[JAT]

If you can't see the antenna lines, aluminum unibody construction of both devices and see the similarity, I can't help you.

On to Jailbreaking, read about the iOS kernel, XNU... I'm not talking about exploits in the code to gain "root-ish" access. I'm talking about the damn kernel!

I said percentage, not monetary numbers. Go beyond your 3rd grade math.

And yes, I know that a lot of that profit goes into R&D and marketing but my number is correct. 69% is wrong.

Whatever pal. I said nothing about R&D or marketing. I even put the math in a post. Maybe you switched 2 words in your head or something. WTF does "I said percentage" mean, anyway? They are the same number, when actually understood, so who cares which I typed at what time. For the record, you said "what is my profit margin", no mention of presentation. Since I had already given the percent, the 2nd time I chose the dollar figure. I am an autistic accountant. Don't know what you are, but if you think you can beat me in accounting math, please keep throwing up hanging curveballs.

Why would any user care about kernel access? What does root access not give you that you want? You want your own OS, write your own OS.

Apple's been doing unibody aluminum for years, including the iPhone 5. Thinking the 6 design came from HTC is ludicrous.

 

[kingofwale]

unless you (CooK) wants to actually release your material cost break down, I advice you to shut the hell up.

Don't give misleading information like that and then not backing it up with actual number. With profit margin at close to 40% (Including R&D and ridiculous amount paid to Angela), it's almost like Bill Gates talking about how much taxes he has to pay... NOBODY CARES

 

[Iconoclysm]

like Apple's executive compensation? For Tim, Angela and co?

You know, for many, many years, Microsoft charged $500 for Office. So, 499.99 profit per sale, right?

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Realistically, Samsung sells about the same number phones worldwide but Apple is more profitable. Samsung has the added benefit of manufacturing much of their own components. So I very highly doubt their margins are the same as every other company.

Samsung does not sell the same number of flagship phones. Yearly, Samsung is lucky to sell more Galaxy S models than iPhone sells in Q1 and that only happens once in a while. Samsung's largest selling phone models are the low margin, nearly free models.

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Yeah, as that's where they got the bigger screens from, or NFC support and ideas, or earlier adaptation of LTE, etc.;

No matter how much you like it, Samsung innovates plenty. As Jobs said..."Great artists steal." Apple is great at taking existing technologies and making them marketable and well used. I'm typing this on a Macbook Air, I am waiting for my steel Apple Watch, and I viewed this thread on my iPhone 6 plus. My iPad is obsolete. I have an unused Core 2 Duo Blackbook, and another old Macbook Air somewhere. I am a fanboy. I will openly admit it. But that said, I can tell you how much Apple steals. Or improves. Depends how you want to look at it. Last I checked, iOS's GUI reminds me a lot of Palm OS, and the way you close Apps in iOS 7 is the SAME EXACT WAY AS WEBOS.

This is R&D: Apple, like all other companies, needs to measure competing technologies to see how much it would cost to license, what their liabilities are, etc.

How many different ways can people misunderstand Steve Job's artist quote?

I don't care how many Apple products you own or if you're a fanboy, you may have the gumption to rise above that and come out against Apple on something but you're doing it unnecessarily. Samsung does not invent technology, they invent ways to refine manufacturing of that technology. They usually don't even come up with the original method of manufacturing. Samsung doesn't create ARM processors, ARM does. Samsung makes a variation...and Apple has been making their own variation of ARM, by contracting Samsung to manufacture it. Samsung didn't invent storage or RAM, they didn't invent LED or OLED, they didn't invent Flexible OLED or Transparent OLED. There's virtually nothing you can point to that Samsung pushed into the current technology world.

 

[Millah]

And a big one: manufacturing

Yep. People vastly underestimate the costs it takes to manufacture Apple products at their levels of fit and finish. Particularly the Watch. The Watch "craftsmanship" videos show the incredible lengths Apple goes to manufacture goods at very high quality. It's unprecedented. Apple has THE most impressive global supply chain, bar none.

They buy entire German CNC mill factories to produce CNC milling machines for them. Every time a product design changes, they need to develop and build entirely new custom tooling to machine (and fixture) the various parts. The custom tooling constantly needs to be replaced every X number of hours used. The machines cost a boatload to run per hour of runtime. They are CONSTANTLY investing in innovative new processes to take their quality levels even further (see the craftsmanship watch videos). I could go on and on.

They probably invest more into building and making the products at incredibly high levels of fit and finish, than anything else. And it's not a one time investment, it is an operating cost. But the most staggering things is the scale of it all. They have Rolex-level processes going into massive scale manufacturing.

 

[H2SO4]

For as long as I can remember, people seem to think that R&D costs are somehow included in the gross margin.

No. Gross margin is what allows R&D (and marketing, and Tim Cook's salary, and other non-manufacturing expenditures) to be paid. Gross margin is price minus manufacturing & parts cost.

So if Apple sells 20 million Watches at an average GM of $150, that's $3 billion to repay the R&D and other non-manufacturing costs, most of which were speculatively expended well before the first Watch even shipped.

R&D costs aren’t what people think they are anyway. One thing we can all agree on thought is that they are almost impossible to put a cost on.
Think about it, virtually everything they learned in the iPhone was put into the iPad. They didn’t suddenly forget everything they had learned previously and start from scratch.
Every time they employ someone new the new ideas they bring from other companies - how do you quantify that? This particular cost is very cheap indeed.
Also the supplies (printers, paper & pens etc even coffee), tooling (CNC, test bays cabling and hand tools), and software, what you think they throw it all away and place a new order at Radio Spares when it’s time to devise a new project?

So with all that in mind what are the iPad development costs?

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Yep. People vastly underestimate the costs it takes to manufacture Apple products at their levels of fit and finish. Particularly the Watch. The Watch "craftsmanship" videos show the incredible lengths Apple goes to manufacture goods at very high quality. It's unprecedented. Apple has THE most impressive global supply chain, bar none.

They buy entire German CNC mill factories to produce CNC milling machines for them. Every time a product design changes, they need to develop and build entirely new custom tooling to machine (and fixture) the various parts. The custom tooling constantly needs to be replaced every X number of hours used. The machines cost a boatload to run per hour of runtime. They are CONSTANTLY investing in innovative new processes to take their quality levels even further (see the craftsmanship watch videos). I could go on and on.

They probably invest more into building and making the products at incredibly high levels of fit and finish, than anything else. And it's not a one time investment, it is an operating cost. But the most staggering things is the scale of it all. They have Rolex-level processes going into massive scale manufacturing.

This crap again. I wouldn’t mind betting that the Aircraft and automotive industry manufacture to closer tolerances than Apple.

 

[Iconoclysm]

Most Apple fanatics rarely stray from pro-Mac websites. No way they could know that the iPhone 6 & 6 Plus were blatant ripoffs of the HTC One but with heavy radii on the corners. I mean it is the most obvious thing I have ever seen.

Completely insanity. You believe yourself don't you? You think Apple threw together their design based around the HTC One and not say, around the fact that they'd already been building an aluminum smart phone for 2 years? I've owned each iteration of the iPhone and the HTC One, they do not look the same. Certainly not even as close as the Galaxy S6 looks to an iPhone 6. And if that's the most obvious thing you have ever seen then nobody can help you.

As for "Apple fanatics" straying to other sites, it's pointless to discuss things with the insane number of people who instantly discredit or attack a person for even hinting that they like Apple products. And this is from someone who knows more about technology than 99% if not more of the people posting on those sites. It's pretty embarrassing, most grown adults with half a brain wouldn't bother posting.

 

[H2SO4]

You know, for many, many years, Microsoft charged $500 for Office. So, 499.99 profit per sale, right?

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Samsung does not sell the same number of flagship phones. Yearly, Samsung is lucky to sell more Galaxy S models than iPhone sells in Q1 and that only happens once in a while. Samsung's largest selling phone models are the low margin, nearly free models.

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How many different ways can people misunderstand Steve Job's artist quote?

I don't care how many Apple products you own or if you're a fanboy, you may have the gumption to rise above that and come out against Apple on something but you're doing it unnecessarily. Samsung does not invent technology, they invent ways to refine manufacturing of that technology. They usually don't even come up with the original method of manufacturing. Samsung doesn't create ARM processors, ARM does. Samsung makes a variation...and Apple has been making their own variation of ARM, by contracting Samsung to manufacture it. Samsung didn't invent storage or RAM, they didn't invent LED or OLED, they didn't invent Flexible OLED or Transparent OLED. There's virtually nothing you can point to that Samsung pushed into the current technology world.

He said Samsung innovates, not Samsung invents.

 

[Iconoclysm]

This crap again. I wouldn’t mind betting that the Aircraft and automotive industry manufacture to closer tolerances than Apple.

In most cases, you'd be wrong. Certain parts, sure. But one look inside most airplanes and cars will show you an immense amount of inattentiveness. From cabin space poorly utilized, to ****** parts slapped behind a plastic façade covered in faux whatever, the car industry as a whole gets it right about 1/100 times. And when it does, those cars aren't cheap.

As far as aircraft goes, can't even believe you'd go there. Yes, they must be flight worthy but how much has changed in 60 years to the design of an airplane? Take a look out the window someday at the wing of a plane. You'll see inconsistencies from 10 feet away.

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He said Samsung innovates, not Samsung invents.

They didn't "innovate" in those spaces either.

 

[ZCT]

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.

I may not be Tim Cook, but I'll take a shot.

It comes down to quality. On the Apple website they claim that just to cut the 100 or so pieces needed to make their bracelet takes nine hours. It then is assembled and hand finished.

And you think that a fair price for that kind of work would be $50? It's a good job you are not running Apple.

By point of comparison, a Tag Heuer Link bracelet on an unofficial retailer site costs $575. Longines wants $250 just for the 'deployment buckle' so that doesn't include an actual strap. Breitling charge between $700 and $2000 for theirs.

You also seem to be ignoring how many hundreds of prototypes had to be made before the final design was achieved, how much money it cost to invent the manufacturing process and to train the staff.

On top of all that, most Swiss or decent quality solid stainless bands have a cheap spring and pin system. The higher end ones are usually screws. But the bottom line is that on most watches, even on the ones that cost more than the Edition, you're going to need at least a screwdriver, but sometimes specialty tools to change bands or add or remove links.

Apple comes to the party, and despite not having a couple of hundred years of watch making experience like some of the major players, bring a bracelet that can be resized by adding or removing links, and can be switched out, all without any tools. It's a huge innovation, that I simply have not seen commonly used even in high end watches costing thousands.

So yeah, to me it seems pretty obvious that there must have been a massive cost to get to the point where these could be sold, and obviously the price point has to be market competitive, and recoup all the costs of inventing, and the ongoing costs of producing this bracelet.

But if you think $449 is too pricey, you can slide on a $49 Sport band, and call it a day. I got to play with one over the weekend, and it's pretty good quality for that kind of money.

 

[hunterweston]

Meanwhile on the planet Earth things are a bit different....

Probably they're manufacturing their products on Mars, hence cost that much. It is obvious that you make so much money out of these products cause of insane public behavior for your brand value.

 

[ZCT]

This crap again. I wouldn’t mind betting that the Aircraft and automotive industry manufacture to closer tolerances than Apple.

What does this have to do with the price of beef in Spain?

Ford sell an F150 every 30 seconds in the United States. They cost between $25K and $51K.

I don't know if you've priced many planes lately, but let's just say they don't start at $349.

Although my Apple Watch has yet to arrive, I've played with my wife's Watch, and handled some in an Apple Store, and I can assure you from what I've seen these things are made to a remarkable build quality.

 

[ZCT]

How is there no crazy margins when the 16k gold watch is nothing more then a regular iwatch with 800-900 worth of gold added to it and what justifies the huge price premium over the regular watch?

Let's start with a few corrections here. There is no such thing as an 'iWatch.' And it's 18K gold, not 16k gold.

Then let's face some realities. Apple is not the first company to make a watch and then make a gold version. And in no case does a company making watches simply add the cost of the gold to the price.

I've given this example before, but I'll repeat it here. A Rolex Submariner watch currently sells for $8,500 in stainless steel. If you buy one with some gold accents (which are in all fairness solid gold), the price jumps to $14K. Have the whole think made of gold and it costs $34,000.

So do you really imagine that Rolex have inserted $25,500 worth of gold into their product?

There are all kinds of reasons why something made of gold is a lot more money, and that goes way beyond the gold. For one thing, only a tiny fraction of buyers will choose to purchase the gold version. Yet just like in the stainless or the aluminum, Apple still had to figure out the process of making their product out of gold in the first place, and experiment with various alloys to arrive at one that was right for the product. They had to do all the same work knowing that they would only sell one for every few thousand or the regular one they sell.

Further, as we've heard on MacRumors, Apple specially trained select staff to sell the Edition. They allocate much more time and effort to the sale, specially personalize the experience. And they had to work out special security arrangements for storage, shipping, and even handling things like repairs and returns.

So when you have a limited edition of your product, made out of a precious metal, and selling it it is fraught with way more logistical hassles, it's going to be more expensive. Just like every other watch maker who has ever made a gold version of their product.

 

[Ploki]

Let's start with a few corrections here. There is no such thing as an 'iWatch.' And it's 18K gold, not 16k gold.

Then let's face some realities. Apple is not the first company to make a watch and then make a gold version. And in no case does a company making watches simply add the cost of the gold to the price.

I've given this example before, but I'll repeat it here. A Rolex Submariner watch currently sells for $8,500 in stainless steel. If you buy one with some gold accents (which are in all fairness solid gold), the price jumps to $14K. Have the whole think made of gold and it costs $34,000.

So do you really imagine that Rolex have inserted $25,500 worth of gold into their product?

There are all kinds of reasons why something made of gold is a lot more money, and that goes way beyond the gold. For one thing, only a tiny fraction of buyers will choose to purchase the gold version. Yet just like in the stainless or the aluminum, Apple still had to figure out the process of making their product out of gold in the first place, and experiment with various alloys to arrive at one that was right for the product. They had to do all the same work knowing that they would only sell one for every few thousand or the regular one they sell.

Further, as we've heard on MacRumors, Apple specially trained select staff to sell the Edition. They allocate much more time and effort to the sale, specially personalize the experience. And they had to work out special security arrangements for storage, shipping, and even handling things like repairs and returns.

So when you have a limited edition of your product, made out of a precious metal, and selling it it is fraught with way more logistical hassles, it's going to be more expensive. Just like every other watch maker who has ever made a gold version of their product.

^^ good post.

This thread is kinda amazing. 75% people here think that manufacturing, shipping, development all cost nothing. Creating machines, manufacturing process, R&D for each part.

They only look at the bill of materials of finished parts coming out of a finished manufacturing process. Insane.

 

[BvizioN]

Probably they're manufacturing their products on Mars, hence cost that much. It is obvious that you make so much money out of these products cause of insane public behavior for your brand value.

It's part of the human nature for people to want bargings or even better free products, ignoring the fact that to make these products it costs money. And also people love to believe that making such products costs close to nothing. Your entire perception about this would change 180 degree if it was you running the business.

 

[thekeyring]

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".

What about the custom designed logic boards and iPhone processor? The S1 in the Watch? Lightning cables? Also doesn't manufacturing include the cost of putting the bag of parts together?

 

[Piggie]

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.

Yes, but the component cost quotes are the components.

The clue is in the word

they are not supposed to include Johy Ive's Daily Doughnut supply or Tim Cooks Hair Gel.
They are just the parts costs, we know that,.

 

[gnasher729]

This article isn't just about the Apple watch. Apple makes huge margins. Fact. How do you find that to be a ridiculous statement?

The point is that guessing the difference between retail price and bill of parts, and calling that difference "profit margin", is (1) ridiculous and proves that someone has not the slightest idea of the cost of running a business and (2) has been used over and over again to attack Apple, and while some people can't have enough of it, some people find it annoying. And they find it especially annoying when the same nonsense comes up again and again and again and again and again and again.

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^^ good post.

This thread is kinda amazing. 75% people here think that manufacturing, shipping, development all cost nothing. Creating machines, manufacturing process, R&D for each part.

They only look at the bill of materials of finished parts coming out of a finished manufacturing process. Insane.

You forgot advertising and marketing, paying store employees, support, and warranty repairs. Anybody can feel free to add what I forgot.

unless you (CooK) wants to actually release your material cost break down, I advice you to shut the hell up.

Don't give misleading information like that and then not backing it up with actual number. With profit margin at close to 40% (Including R&D and ridiculous amount paid to Angela), it's almost like Bill Gates talking about how much taxes he has to pay... NOBODY CARES

You are using that word again: "Profit margin". What does profit margin actually mean? As far as I know, it is a meaningless word made up by clueless people not knowing what they are talking about. The number that you quote is gross margin. Which has a very well-defined meaning, and the meaning is not the profit that a company makes.

 

[gnasher729]

How can you compare custom wood-work with mass produced parts by automated machines and Chinese workers, earning about $2/day (I forget the actual rate)?

With your guess about wages being off by a factor ten or so, was that intentional to repeat the old "Apple hires slaves in China" mantra, or did you genuinely not have a clue?

They are now netting 30-40%, Jesus! They put out an over-priced watch ��

Again, throwing in words without the slightest care what they mean. Apple isn't "netting" 30-40%. They are doing quite well, but you are confusing gross margins with net profits.

 

[Rogifan]

Do people complain about Microsoft and Google's products/services being overpriced? Based on all three's quarterly results Microsoft has the highest profit margin at 30.3% and Google is not far behind Apple at 20.8% (Apple is 23.4%). And if these same people are outraged by Apple's 40% gross margin what do they think about non-hardware companies like Microsoft and Google whose quarterly gross margins were 67% and 63.2% respectively?

 

[flat five]

Unless math is broken, that is around 327% profit; not 69%. If iSuppli is correct.

yeah, math is broken

$649 (phone)
x .69 (what some people think apple's profit% is)
-------
$448 (what some people think apple pockets per phone)

$448 + $200 = cost of phone.. with 200 being the estimated cost of parts..

..........
[EDIT] for perspective- if your math wasn't broken.. you buy an iphone for $650 and apple profits $2125 off the sale.. i'm sure they'd absolutely love that but it doesn't work that way.

you're talking about markup percentage.. thinking all off apple's costs towards a phone are $200 then they mark it up 325%.. but even then, that's not what they're doing.. and markup % is generally associated with retailers.. shoe & clothing retailers are notorious for using the highest markups.. typically, clothing you buy from a store was bought by the store for 1/2 the price you pay.. you buy nikes for $100.. nike sold them for $50.. retailer made $50..

[/edit]

Correct but semantics is lost on the people of this forum.

If they sold that part to someone besides Apple, a lawsuit would ensue but until Apple pays for it, it is Foxconn's part. See how that works? Its's Apple's design but not their physical product until they pay for it. Am I arguing with idiots here?

heh.. a lawsuit
that would be stealing.. like straight up stealing and black market dealing.. it wouldn't be some sort of copyright lawsuit that ensues with fines being paid.. people would go to jail.

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If I make a bar of soap for $199 and sell it to you for $649, what is my profit margin?

but that's not what's going on.

the question is more like.. if you buy ingredients for a bar of soap for 199 and sell it for $649, what is your profit margin..

we can't figure out your margin with the data given.

how much are you charging to design the soap?
how much are you paying to mix the ingredients together?
how much are you paying for packaging and marketing?
how much are you paying your employees to sell the soap?
how much is your salary?
etcetcetc.

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Go beyond your 3rd grade math.

And yes, I know that a lot of that profit goes into R&D and marketing but my number is correct. 69% is wrong.

oh stop already.
it's embarrassing

 

[flat five]

They are doing quite well, but you are confusing gross margins with net profits.

I think that gets at a key point. they are doing incredibly well. it's just that people see their cash pile and start saying it's because of all these ridiculous percentages are being added to their products. I don't doubt that apple makes a higher margin than most.. 'Apple tax' or whatever.

but it's not some crazy additional percent like 20-40-60%...maybe 1-2% higher than competitors.

1-2% on 200billion revenue equals $2-4billion extra per year.. when selling at the volume these huge corps sell at, it doesn't take much extra per item to equal giant wads of cash.

but don't doubt for a minute Samsung etc wouldn't add that 'tax' to their product if the could get away with it.

 

[MrX8503]

$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.

What do you expect from the most successful company in the world? A charity?

 

[ChrisCW11]

Um

Apple doesn't make hardware, they buy it and have it assembled in China. They might provide design details and specs, but they do not make ANY hardware, period.

It is very easy to simply get a Chinese or Korean manufacturer of a part and ask them what the unit costs are. Apple might have these manufacturers sign NDA"s to prevent disclosing this information, but its the 21st century and this information will get out eventually.

So I would imagine that these cost breakdowns are fairly accurate, and even if they are in the realm of $200 less then the actual costs, Apple is still enjoying a profit margin that on average nearly doubles the unit costs to manufacture the product.

While part costs are not the only thing to factor into the actual cost of a product, Apple is not the most profitable company in the world right now because they are barely squeaking by on profit margins.

Apple has ALWAYS charged an APPLE TAX on every product they have ever sold. Tim Cook claiming that these estimates are "way off" and that the price is justified by how "amazing" something is is disingenuous. As the CEO of one of the greediest companies in history, he has a responsibility to downplay these numbers and make it seem like Apple is bringing forward a more value conscious product, all to get people to throw money at them for something that is 2 or 3 times cheaper to make then its retail costs.

Case in point, there is not ONE watch band that costs more then $50 in parts. Looking on Apple's website I am seeing a watch bands that cost up to $10,000 more then the Gold Edition watch, for a piece of plastic or leather. That is just ****ing criminal, period!

 

[sjinsjca]

They don't pay for fabs. Fab time and fab priority but never fabs.

http://thenextweb.com/apple/2012/02...amsungs-texas-chip-making-plant-says-analyst/

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I would indeed have to say your math is broken if you think you can have profit higher than revenue.

Nice work if you can get it.