iSuppli pegs iPad component costs at as little as $259.60
By Paul Miller 
posted April 7th 2010 10:18AM
posted April 7th 2010 10:18AM
posted April 7th 2010 10:18AM
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It would be cool if they could estimate labor/manufacturing costs into their estimates.
@Standingfast
Well if its made in China its probably $0.0001 a iPad
@Standingfast Also Apple has to budget in the costs of running their stores and warranty issues. Actual profit will be a lot less than you think.
@Standingfast
Yeah, I know there are a lot more factors here than just materials and Manufacturing, (e.g. R&D, shipping, etc..), however, I figured that at least knowing manufacturing in addition to materials would give you a much better estimate than just "materials".
@Standingfast
same components as an iPhone plus bigger screen and battery !
well yea maybe a little more complex but still...
@Fat Wombat
No dude, even if everyone that bought an iPad came back and had it replaced for a bad battery, Apple would still cut even. Im telling you, they are too greedy and smart to not have everything covered systematically. If only we could pay iSuppli to make us one for $299.
@Standingfast
Total profit will also change. Once they've made back their money that they put into development and initial marketing, they can claim much more of the actual profit as profit. At the same time, though, I expect several of the competing tablets we have seen here will be out, and Apple will lower its prices. Of course, to Apple, a "discount" is making a $499 device $389.
@abedinthehouse
But if we "pay" them to make us one for $299, wouldn't it cost more than $299? I'm just sayin....
@Fat Wombat
warranty issues? im told apple products are made by the hands of God himself! they last forever. and last time i check, forever is a very long time.
/s
@abedinthehouse
Agreed.
@Standingfast
I can't believe that a company would make something and have the nerve to mark up the price and sell it for more to make profit!
@Standingfast But there was little R&D that went into this. Don't believe the crap the some so called "insiders" are slinging saying they spent a billion dollars on the chip design when we all now know that the chip is essentially the same as that of the 3GS with slightly different packaging. That is a simple reconfiguration and costs nowhere near a billion dollars. Also, if you have seen pictures of the internals of the iPad, you know that it is basically a shell for two large batteries and one smallish circuit board so it is not like they had to spent hundreds of hours figuring out how to shoehorn the components into a small chassis. They had all of them designed for the iPhone, they simply reconfigured them ever so slightly for a BIGGER case. The iPad is a smart move for Apple because it is a small capital investment and mostly all profit even on the initial sales. Hell, they didn't even have to spend much time developing software for the device. In fact, I am willing to bet good money that most of the time spent on the iPad was to create a new ecosystem for the books and movies, etc. and nail down pricing agreements.
@Standingfast
I agree, There was probably a crapload of R&D in this thing, as in all devices.
I worked for a company that did everything in china, and you have Research and Development, US import taxes & tariffs, Shipping, aluminum Mold costs, as well as buying and installing all of the robotics and machinery on the production line.
Ok, so bare minimum for components is $259.60, but add all of this above to that, and the 16GB could be a loss, with the other two versions making it up.
@abedinthehouse Yep you would have a 1.5 pound door stop... You forget you need the OS and the software that comes with the device?
All of that costs money to develop... This is without talking about the A4 PoP CPU... The pictures of the inside of the device kind of tell you how much they thought about every single thing inside the device.
Btw I buy Apple products for the software. I wouldn't touch their hardware if it wasn't because their software just works like you expect it to.
@Fat Wombat Cost of running the store, including staff, is overhead which doesn't move much with the iPad, we'd call this allocated overhead. It brings profit "down", but without extra employees (which they would've had on launch, so that is a different story) this is actually a fixed cost.
Also, what few people consider, this should actually bring the BOM in the iPhone down, though one would need more inside information to confirm and it could have offsets such as opening new production lines or switching production during business hours.
@Standingfast
Cost of magic (powder or in liquid form) that fuels fanboyism: $50/ml
Cost of canned unicorn meat: $9.99/each
http://www.thinkgeek.com/stuff/41/unicorn-meat.shtml
I don't get those that snapped it up at $499. It seemed overpriced. I guess a hysteria will do that to you.
At $299, for a device that will sit on my coffee table or bedside, seems like a better deal.
@FrankTheCrank
Its a much better deal at $299, I saw an interview on nytimes with a guy on the street, he said he was going to buy an ipad eventually. When asked why he replied, "well, to be honest, its more of a collectors thing", then he proceeded to rattle off all the other older apple products he had.
Sometimes people just want a cool toy to play with, doesn't have to be perfect.
@Standingfast I wonder @299 if people who bought one at 500 would've bought 2. I can see that being somewhat-to-quite tempting, one for the house/family and one to keep on your person at all times. That being said, this wont go to even $400 until there is competition and it's somewhat foolish to even speak of.
@Standingfast
Actually I disagree with iSuppli. I wonder what do they base their material costs on.
My guess, being a business owner myself, would be the total COGS would not exceed 1/3 of the selling price. So pure profit would be about half. If the "bill of materials" is at half the selling price, Apple would make very little. That is simply not good business sense.
On top of that, one has to remember that while doing manufacturing of such devices, usually heavy discounts are given from supplier to the assemblers.
@Standingfast And marketing.
don't a lot of companies take a loss when they first initially sell a product? i.e. Sony and the PS3, Microsoft and the Xbox? even though the 360 has been out for a while hasn't it only started turning a profit just recently?
how come Apple is exempt from this typical business model and are allowed to be greedy without impunity? oh is it because it's shiny, can make you breakfast, cure cancer, and scratch your back? give me a break.
@GarkKrag
Actually I agree. No flash almost made me not purchase the thing. In my opinion however, the iPad is a good "gadget" to play with, and I expect to get many months of entertainment out of it.
For my practical device, I use a netbook.
@Standingfast even with labour costs taken into account the mark-up is pretty steep. This thing is after all made in China. What should be of more concern to people is value for money. Is the iPad value for money? I'm betting the people that got the ones that refuse to connect to WiFi networks don't think so.
@aikiwolfie
Is the iPad worth the $500? IMO no, not unless you are interested in playing with an iPod Touch XL. I personally see very little "practical" use for this (in my life anyways). I bought it purely as a novelty item.
@Standingfast
That's such a stupid argument, particularly as an iPhone costs more. If you can't understand the difference a larger screen makes in not only UX but the overall utility of the device, stick to commenting on cosmo.com
I went to iSupply's website to check this out a bit more. While I couldn't find it spelled out specifically, it seems they use what I'll call "wholesale price index" for these goods (some might actually not be, such as the IPS display, but I'll leave that out). Many of these goods Apple might get discounted further than what iSupply actually states/knows, there of course, is no way to confirm this without further disclosure. However, they use a model, which is consistent with lower tier manufacturers than Apple and in many occasions I'd see Apple getting greater quantity discounts than this list.
@Standingfast
Apple could have sold this at a loss and made up the difference in sales of content. On the same note, fools did not have to buy the thing either.
Actually price points would be a lot better for you Apple fans if you were a little more discerning. If you turned your nose up to these items when they came out due to price, Apple would not keep slamming you with these high prices.
http://www.usingenglish.com/reference/idioms/a+fool+and+his+money+are+soon+parted.html
@Standingfast do you know how costs of goods sold/profit is determined under GAAP? ;) R&D etc. are not included in cost of goods sold! they are rather period costs
@darkmax The cheapest one is most likely a loss-leader. Look at the increase in price of the models relative to the cost of materials. They are making great margin on the upsell.
@Eraser
"Exempt"? Exempt from choosing to lose money from their business? Selling your machines at a loss and hoping to make it up in software sales has shown that it does not work (and it definitely would not work for Apple, as the revenue from the apps is too low). Sony and Microsoft's gaming divisions haven't come close to making back the billions they've lost over the years. They offset the losses with the profits made in other divisions. By the time they could even get close to breaking even, a new console will be out and the same loss cycle will start up again. While Apple COULD do that, they have no reason to, as they don't have a 2nd competitor that nips at their heels.
@Standingfast
At least your comment got in first before the inevitable ZOMG 100% PROFIT MARGIN morons.
It's amazing how Apple fanboys defend everything Apple does.
Yes a company needs to make profit. Yes, they're doing the right thing in milking fanboys. But to pretend as though they need a 66% profit margin so that they can stay afloat is beyond absurd.
Many industries rely upon much smaller profit margins. Take cars: mainstream cars for example take about 10% in profit margin ($20k car makes $2k), whereas luxury cars make 25% (say a BMW). And there's significantly more overhead in automotive--they have in-house manufacturing, often within the US, thus increasing overhead more (not to mention marketing, R&D, etc).
Apple pretty much outsources all of its production to Asia, keeping production costs way down. The iPad is based on the iPhone OS, which also keeps costs down. Saying the company is right for making money is one thing. Saying it needs that 66% margin for covering the overhead is laughable.
@sugaki They don't have a 66% profit margin. There's this concept known as OVERHEAD that you seem to not comprehend.
When they manufacture a product, it costs more than just the cost of the parts.
@NikAmi You know that little chip company that Apple bought a couple years back whose tech Apple most likely used to help them design the A4 processor? It's estimated that Apple spend $278 million on that company. So lets say Apple wants to make that investment back in the first 5 million iPads sold. That's another $55.60 to add into their costs (you can call it R&D) just for the investment in the company, not including the costs to actually develop and test the A4 chip, which was designed in-house. So your assertion that very little R&D went into the iPad is ridiculously ignorant.
Then as others have pointed out, the software had to be developed and tested. It's not just the iPhone's OS running the iPad, they had to customize the UI for it. What about porting iWork to run on it with an entirely touch interface? You can bet at $9.99 per application, Apple's not making money from selling the three apps, a lot of that development cost came out of the iPad budget because it was important for the iPad's overall success.
Don't get me wrong, Apple is making a comfortable profit on the iPad, but it's not as high as you're limited concept of business is trying to make it out to be.
@Standingfast It doesn't matter, some turds will still keep on buying it.. As for me? I'm still waiting for the courier- http://bit.ly/tablet-by-microsoft-future
@Eraser Maybe because Apple's games aren't $60? And maybe because the consoles of Microsoft ($6 billion net losses) and Sony ($3 billion net losses) were completely crushed by Nintendo, who did not take part in that fool's race?
@glamajamma "Apple could have sold this at a loss and made up the difference in sales of content."
This is entirely unreasonable when you see that the average iTunes customer spends $2 per month on iTunes content.* That's 60¢ for Apple to cover their costs and a profit of maybe ¢0 to ¢20, depending on the kind of content, or less than $5 over 2 years (lifespan of one device).
What's new about the iPad ist that it offers a lot more opportunity to waste money on iTunes, but it also offer lots of free options (with the web at the top of the list) as well as clients for competing services like Netflix and Kindle which do not pay a dime to Apple. Overall, iPad users will not spend an order of mangitude more on digital content than iPhone or iPad users. That, however, would be a prerequisite for Apple to offer the iPad as a loss-leader.
It's very hard to discuss Apple as a business if people come in with the fixed idea that it's a complete rip-off and shoe-horn every single step the company makes into that preconception. If you are actually interested in what Apple makes on their products, check out their financial reports. The net margin is no more than 20 %. iSuppli is pure flamebait.
* iTunes had 150 million registered customers and about $1 billion in revenue last quarter.
Title should be "iSuppli pegs iPad component cost as little as $259.60"
@Jaylittles531
And that's not counting the discount they get from parts bought in China in bulks. Also, labor is being done overseas which offsets R&D. Wait, Since this is just a bigger ipod, then there is no R&D ;)
And this is not just for apple products. All Companies do this....
@MoonWalkerCTE
Except most compnaies squeeze 15% from their customers as profit not Apple's usual 40% which with the iPad is looking more like 50%.
@fourthletter And the google Nexus one carries (£114.505) $174.15 Materials Cost, iSuppli states. On amazon the nexus one retails for £599.99 so they are making 50-60% profit too. Your comment is invalid.
http://www.amazon.co.uk/Htc-Nexus-One-Google/dp/B00332YPHQ/ref=sr_1_1?ie=UTF8&s=electronics&qid=1270650496&sr=8-1
http://www.isuppli.com/News/Pages/Google-Nexus-One-Carries-$17415-Materials-Cost-iSuppli-Teardown-Reveals.aspx
@fourthletter You should check what overhead costs mean.
@fourthletter
You also need to adjust for labor and engineering costs; of which Apple will say brings the actual unit cost to around $10,000. So, you know, the iPad is a bargain!
Oh, those magical geniuses...
@MoonWalkerCTE
You correct, Every company does this, On top of that amount you have to add, years of R&D & labor during development, packaging design and cost, promotional & advertising, delivery, warranty returns, In the end, there's no where near the profit that people think there is.
@MoonWalkerCTE You can't compare an off-contract phone and a device like the iPad. The reason they put the price on the Nexus One so high is to discourage people from buying without a plan.
Also, Apple makes a ton of profit on their app sales even after their massive hardware profit.
@fourthletter
Apple is not bad on this one, i used to work in the hardware industry and the markup was between 75% and 160%
And they weren't products that involved R&D like a tech gadget with a huge touchscreen.
@fourthletter
Don't attack him
Maybe you just don't realize how much money it costs to do this kinda stuff, okay so it costs 259 to build it plus man labor plus shipping to the states then shipping to the stores, paying for all the ships and trucks, paying for the employees to run the stores, paying rfor the electricity, heating and Internet for the store, pay the people who designed it who write software who update it...
I mean it really does add up guys
@MoonWalkerCTE
...but not all companies have the same amount of profit...