Your $200 iPod nano costs about $90 to make
posted September 23rd 2005 9:20AM
We've run these bits before where analysts step in and check out how much money they believe a device costs in parts (and manufacturing) to produce; this time it's iSuppli estimating the cost of goods in making a 2GB nano. And what figure did they happen come up with? $90.18. Yes, we know the retail on that thing is $200. Granted, they could be way off, but by their calculations you're paying a huge portion of that ninety bucks on the integrated circuits, screen, wheel, and flash memory. It's important to point out that iSuppli's figure does not include Apple's cost of business (marketing, operating their dozens of storefronts, employing tens of thousands globally, etc.), however, which they conservatively estimate as being anywhere from 15-20% of the unit's cost, a figure that just doesn't seem quite right to these ears. Then again, a 40% ($80) margin on the nano wouldn't exactly surprise us, either. Maybe we're in the wrong business after all.
I would point out the $90 cost of materials and manufacture, was an estimate, with a HUGE FUDGE FACTOR! They estimated the NAND memory at a below market price, based upon the rumor that Apple got a 40% discount. That's the biggest cost of the nano, the NAND memory. Until we get a definitive answer on the deal Apple struck with Samsung, take these estimates with a big grain of salt.
I would guess that the nano gives Apple a 20% gross margin, just like their other flash iPod, the Shuffle. Apple's total gross margin is around 28%. They release this information every earnings conference call with analysts. The analysts always ask if this percentage is going down next quarter, and if it looks like the margin may slip to 27%, they go apesh*t with their warnings to their investment bank clients. Seeing as I didn't see any warnings after Apple's last earnings conference call, one can only assume that Apple gave guidance to the analysts that margins were inline with expectations and that means, at least 20% on the iPods, and about a 28% average on all their products. Listen to their conference call if you want to learn about their gross margins.
It's hilarious to me that people are trying to make excuses for why their margin might be extremely high. Apple's model requires them to make extremely high margins(relative to others in the industry) on the products they sell, they don't outsell Dell in Computers, so they charge for name and quality, that is the only way they'll make back up the money to stay competitive(whether that is through design or whatnot). Either way it's just business, the Nano appears to be a nice product. They charge what the market will bare, as any responsible business does. 27/28% Profit Margin is high, that will pan out nicely if their revenues go up.
Well.. good for apple... they deserve it... but its not like they just put their earnings in steve jobs pocket... it goes into r&d for the next product we are all gonna want ;)
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Aha! smart enough to see that future products cost r&d money.. stupid enough to think current products needed no r&d spending.
Amazing!
Here's something else to keep in mind... WRT iPod/iTunes Apple makes the majority of it's money off the device and not the music (which is only a few cents per song). They also have a huge expenditure for marketing which they're obviously willing to spend for the halo effect. So they're just doing everything they can to maximize revenue. Following the typical product lifecycle you can expect prices will start to come down in order to capture additional marketshare as sales dwindle.
spammer: larkbark@hotmail.com
So, in comparison, how much is the manufacturer's cost of a seat for Windows XP?
The estimation of margin is way wrong.
Between 90$ and 200$ there is:
- Apple's cost of operation: R&D, marketing
- Apple's profit
- merchand's cost of operation
- merchand's profit
And I don't expect Amazon or Circuit City to pay more than $150 for a $200 iPod nano, leaving the Apple's profit to be around $30 = 15%.
Probably the profit is somewhere between 10% and 20%.
@SomeCat (45): overpriced? Go buy a flash-based DAP from Creative for $250. Let's see what they will sell you.
That's the street price of a Compact Flash of the same size, dude.
Lo importante es que la gente no est?ispuesta a pagar USD200 por el Nano. Las ventas no son lo que esperaban, entonces... ¿en qu?e equivocaron? Una receta b?ca del marketing es la siguiente "¿cu?o est?ispuesto a pagar el cliente por tal producto"? Y poco tiene que ver con lo que cuesta. El art?lo no aporta nada, es horrible.
There need be no correlation between the cost of producing something and it's market price. The estimate may also not be taking the cost of R&D and testing into account.
The bottom line is this. If a person feels that they value a Nano more than the $200 bucks in their pocket, they'll buy a Nano. If they don't, they won't No one is being coerced or cheated.
Chris
http://amateureconblog.blogspot.com/
If you think that's bad, look that the mark-up on clothing and CDs. Electronics generally have a low mark-up, and $110 mark-up on a $90 product isn't too bad at all.
I see alot of people on the internet selling 4GB nanos at $140 per unit in bulk quantaties to independent retailers like people who sell on ebay! Do any of you guys know how much the suppliers sell this ipods to retailers for? Is the suppliers margin very slim? I'm pretty sure they get a cut of the american pie too right? Anybody knows? Are this people that wholesale this things scammers you think? Thanks
for crying out loud people the article states that the estimate doesn't include the cost of business, including marketing. most of the comments i read referred to how ludicrous it was that these factors were not taken into consideration...there was never a misrepresentation that it did!
also, some people are suggesting that there are standard markups for every product on the market, and it is as simple as that...i don't think so. i worked for a merchandise company at a major sporting event, and let's just say that the above suggestions of 400% markups for apparel are way too conservative! i promise you, 1000% markups for clothing and shoes is not unheard of. but people are all to willing to be ripped off, so they can go ahead and charge these obscene prices.
at the other end of the spectrum, farmers are being held to ransom by the supermarkets and are making diminutive profits. once again, people don't care that they're getting ripped off by the retailers. unbelievable.
once word can explain all of these seemingly illogical and irrational facts make sense - marketing (and lots of it). anyway, if we're going to condemn this world to an environmental armageddon, we may as well make the big companies rich while we're at it.