Apple iPad Profit Margins Dissected


Apple’s iPad tablet PC underwent a virtual teardown by research firm iSuppli, which surmises that the device will offer a sizable profit for the tech company

A virtual teardown of Apple’s iPad tablet PC by research firm iSuppli has found that the tech company can expect a sizable profit from the device, particularly its mid-range models.

In theory, that gives Apple room to be “nimble” on pricing for the device, as one Credit Suisse analyst has suggested it may do if customers decline to flock to the device’s initial rollout in two months.

“At a BOM [bill of materials] and manufacturing cost of $287.15, and a retail price of $729, the 32Gbyte/3G version is expected to generate the highest profit of any member of the iPad line on a percentage basis,” Jagdish Rebello, analyst for iSuppi, wrote in a 10 Feb. statement. “The 32Gbyte versions of the iPad cost only $29.50 (£18.85) more to produce than the 16Gbyte versions, but their retail pricing is $100 higher. This shows that Apple believes the highest-volume opportunity for the iPad resides in the mid-range of the product line.”

The lowest-range iPad model, which will retail for $499 and offer 16GB of memory but no 3G connection, is estimated by iSuppli to cost around $229.35 (£146.75) to build. On the other end of the scale, the $829 iPad with 64GB memory and 3G connection could cost $346.15 to build. A full chart and breakdown of the various iPads can be found here.

According to iSuppli, the most expensive component in all the iPad models is the display and touch-screen interface, which represent a combined cost of $80. The LCD display leverages IPS (in-plane switching) technology for a wider viewing angle and supposedly better picture quality.

The iPad’s second-most-expensive component is NAND flash memory, despite that cost being variable thanks to the different models. In third is the combined applications processor and DRAM, with a cost of $28.90. Next comes Apple’s proprietary A4 processor, estimated to cost the company $17.

“The processor integrates an ARM RISC architecture microprocessor and a graphics processing unit,” iSuppli’s team theorised in a Feb. 10 research note accompanying Rebello’s statement. “The part likely was designed by low-power processor specialist PA Semi, a fabless semiconductor company Apple acquired in 2008. However, the device most likely will be manufactured by Samsung.”

Those iPads with a 3G connection will have a wireless subsystem estimated to cost $24.50. On top of that, iSuppi believes Infineon will provide the wireless chipset, as they are producers of that same component for the iPhone 3G S.

User interface components for the iPad, including the accelerometer and compass, are estimated at $10.20, while the Wi-Fi device is plugged at $8.05 and the GPS chip could cost around $2.60 per unit.

Apple may be “nimble” on its price point for the iPad, Credit Suisse analyst Bill Shope recounted in a research note, excerpts of which appeared in a 8 Feb. Wall Street Journal blog posting. Shope claimed to have been told as such by Apple executives during an early February meeting; if the assertion proves true, a dip in the price for the iPad would mirror that of the iPhone, whose price was slashed by $200 some two months after the smartphone’s release.

Some analysts have seen the iPad’s existing price-point as a potential negative, at least with regard to the e-reader competitors such as’s Kindle, which currently retails for $259.

“IPS offers a better viewing angle than traditional LCD technologies,” IDC analyst Susan Kevorkian wrote in a Jan. 27 research note, “but is not any better than other LCDs outdoors, and its backlighting can induce discomfort from eyestrain, something that Kindle has hedged against with its E Ink display technology.”

Apple CEO Steve Jobs reportedly made an appearance in New York City on 3 Feb. to discuss the device’s multimedia capabilities with high-ranking executives from The New York Times. A vital part of the iPad’s rollout will involve both its application pool and content partners. Although the iPad’s retail price is lower than for a number of Apple products, rumors of a price cut may compel customers to wait for an actual price drop rather than purchase an iPad immediately upon release, giving the current chatter about cost-cutting the potential to become a self-fulfilling prophecy.

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