Researchers rip iPad apart to reveal Apple's profits
Apple stands to make a profit of up to $483 per unit on its iPad according to a very literal breakdown by industry analysts iSuppli. The research firm said the total cost of materials and manufacture for Apple's big iPhone ranged from $229.35 for the 3G-less, 16GB version, which sells for $499 to $346.5 for the top of the range …
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Is all the other stuff free then?
I'm thinking of product development, factory tooling, packaging, marketing, etc, etc.
Really, I can see how this kind of stuff might be relevant on a mature product, but for one that isn't even on sale yet?
Maybe these guys could just buy all the bits and make their own.
Might want to start by reading a "Dummy's" book about business basics first, though.
They haven't shown Apple's profit margin at all, they've just shown that Apple won't be likely to be selling each unit as a loss leader for other services (like Kindle might have been) and they have a large scope for price reductions to stimulate the market or allow carriers to offer discounts with data contracts if necessary.
Don't forget that anyone buying one of these who previously owned an iPhone or one of the various iPod models may well have a library of media and applications that can just be used to fill the thing up without spending any additional cash - how often do you encounter that?
Do we need all the Sales - BoM doesn't = profit comments?
"Apple stands to make a profit of up to $483 per unit on its iPad according to a very literal breakdown by industry analysts iSuppli."
They already said it was very literal!
Not all apps are free
"Don't forget that anyone buying one of these who previously owned an iPhone or one of the various iPod models may well have a library of media and applications that can just be used to fill the thing up without spending any additional cash - how often do you encounter that?"
Now I wonder how the people that wrote the apps feel about apple giving away their liecense? Sure you paid for a licesen for one device, but you didn't pay to use it on as many as you like. Thats called Piracy? Or maybe iPad owners will throw away their iPod or iPhone?
Oh, and lets not forget, as every one seem to be doing.... that any one with a PC also has a library of apps and media they can use on a windows slate..... pirated or not...
App licences
As I understand it, by default, when you purchase an app (even free apps are counted as zero cost purchases), the licence is assigned to the itunes store account. As such, it can be installed on as many devices as use the account. The App Publisher can request that the licences be restricted to one machine.
I haven't looked too deeply into this so could be wrong.
Not all apps are restricted.
"Now I wonder how the people that wrote the apps feel about apple giving away their liecense? Sure you paid for a licesen for one device, but you didn't pay to use it on as many as you like. Thats called Piracy? Or maybe iPad owners will throw away their iPod or iPhone?"
Well, no, that's no the way iTunes licensing works. Unless specifically restricted anything you buy through iTunes is licensed against the account and the account can be registered for use on up to five machines at any one time (*not* five devices). Each of those computers can sync a number of devices (I don't know if there is a limit, but I haven't encountered one) and transfer any compatable stuff to the device.
So, you can own an iPod, iPhone and iPad and sync all of them with one machine (or each with seperate machines using the same account) and use all movies, TV programmes, applications, etc. with whichever devices support them.
So, *no*, this would not be piracy.
"Oh, and lets not forget, as every one seem to be doing.... that any one with a PC also has a library of apps and media they can use on a windows slate..... pirated or not..."
But that *would* be piracy (well, breach of licensing terms anyway) unless the license for the software specifically allows the use on more than one machine, which most commercial PC software does not allow by default in my experience. Granted, in practice most manufacturers don't make any serious attempt to restrict you from doing that and probably wouldn't persue you anyway, but if you're going to suggest that one system has an advantage over another you probably want to make sure which way around they are first.
That said, you appear to have missed my point anyway, here it is in a plainer form:
Apple make money from every sale though the iTunes store (apps, movies, music, etc.). People who buy the iPad will almost certainly already have an iPod and/or an iPhone, so may well not purchase as much content for the iPad as they will already own it, thus reducing the after-sale revenue stream.
It's a bit like the VHS->DVD->Bluray thing. When people moved from VHS to DVD they bought DVD copies of stuff they already owned on VHS, but it's unlikely they will buy Bluray copies of anything they already own on DVD. If the hardware manufacturers were getting a cut of every disc sold you can bet your life that either they wouldn't be compatable or the hardware would be more expensive (probably both, in fact).
What the....?
How can Bill Gates lecture anyone about pricing when he rolls out a new version of office every few years with the same old crap and a few more buttons tacked on with a subtle colour change thrown in for good measure?
Yes,the iPad is expensive. So are BMWs. Yes I'm a (trying to be realistic) fan boy. No I can't afford one! :-(
RE: What the...?
Don't foget the f**king ribbon.
I still can't find half the functionality I used to have in Excel 2007.
...and I've been using it for longer than I ever used Excel 2003.
Naive and insulting
Any analysis of the cost of producing a high-value technological product that considers simply the raw material and manufacturing costs is naive and insulting. Still, no doubt it will attract comment from those who are under the delude impression that the purpose of a company in a capitalist market is to make as many items they can for as many people as possible at the cheapest price.
The suggestion that large profits are a bad bad thing is valid, but is rather out of the scope of any discussion about a single product or company. We live in a capitalist society which Apple is obliged to operate in like anyone else. Why shouldn't they strive to maximize their profits like anyone else? The price they sell the iPad at is dictated by the market. Customers have other options if Apple have misread the price their intended market will bear.
Immediate costs are very important
"Any analysis of the cost of producing a high-value technological product that considers simply the raw material and manufacturing costs is naive and insulting."
No it's not. You don't just get the whole picture.
It tells how much it costs to make a single unit, ie. _immediate costs_. Very important part of overall costs. If you make 10, immediate costs are 10-fold.
Everything else is secondary costs and more often than not, they are constant. If you make 10, this cost is usually 1-1.05-fold of making one. Make 100 and the cost is 1.5 to 2-fold.
Assembly work can be bought at $1/h and 30 phones per hour is normal. And now here's somebody talking about assembly costs? In a device which cost than $400?
Constant cost per unit manufactured is very strongly dependent on how many units you are going to make (or manage to make) and Apple obviously is going to make many millions of these, so everything else but immediate costs are either neglible or totally irrelevant.
Anybody doing any meaningful analysis should grasp that fact.
I could also calculate that the cost of one Windows-licence for MS is practically zero and thus the selling price is pure profit, infinite percentage. When you sell 100M licences per year, your development team cost (100 people) is lost in rounding errors. No wonder that net profit is 40%, after the taxes. Drop sales force, advertising and legal department and that's 80%.
Bill Gates
Wasn't Bill Gates also unimpressed by the iPod and the iPhone? As a techno pundit he's somewhat lacking.
Ahh Bill G..
Not to mention the fact that he thought Tablet PCs were the future (they weren't), and we'd give up the internet and just use MSN..
looks like Internet usage...
is heading toward private networks not unlike AOL or MSN. Just not in the way Bill Gates had imagined/hoped at the time.
Missing costs...
Adding to the lists of costs not mentioned in the article above parts:
1) Aftermarket care - warrenty repairs/replacements aren't free and no matter how good your product there will be some of those
2) Taxes. You say apple take $400 over materials, even if your cost includes EVERYTHING to get all the parts all the way to a finished product in my hand, apple doesn't get to keep it all.
Might as well say my car is a rip off because it cost £12k new but is made up of only £100 of steel, might as well go buy a big lump of steel and make one myself right?
That car analogy.
Really bloody awful that and worthy of the icon all on its own. The iPad costs were for components, not raw materials (probably down to a few pennies there).
Your car though. Look up the price of each component and add 'em all up to get the DIY cost. Costs quite a bit more than buying a bloody car, doesn't it? So, in that case at least, the cost of assembly, marketing, product design etc is somewhat more than outweighed by the advantages inherent in mass production and bulk purchase.
Ok, your car manufacturer isn't paying even trade rates for components, but I'll bet a sack of cash that Apple aren't paying manufacturer's quoted bulk prices for 10,000 units for their bits 'n pieces either, so iSuppli's "costs" will probably be on the conservative side.
Apple are coining it.
The car spares analogy isn't a good one
Yes a 10 grand car will cost 20-30 grand if assembled from manufacturers spares, but remember that in this instance the stupidly high price you pay for a specific part is, I would estimate, around 90% covering the costs of stock holding and logistics. It also depends on demand as well.
For instance, an oil filter is a high demand part, routinely replaced. Large market for this, retail costs will be competitive.
An obscure bit of trim will be extremely expensive, and the mark-up will be percieved to extortionate, but in reality it will sit in the warehouse, individually bagged and tagged for years, eating up the storeage costs.
Oh and in the FMCG arena, overall mark-up is often 100%+, as there are 3 chunks of profit that need to be accounted for. The manufacturer / assembler, the Branded owner, and the retailer.
Leaving out taxes, the manufacturer will be making 10% tops, the brand and the retailer probably evenly split at a 30-50% margin.
Fail to that, sir
Everyone knows that if you tried to buy all the individual part to a car/motorcycle/WHY at retail/trade you will end up paying more than twice what you would pay for the fully assembled item. So not much of an analogy there then.
Like others have said - Apple have a whole set of operating costs that many others do not. You could start with the Apple stores worldwide. You could then go on to their after sales service both in-store (extraordinary by any measure) and on-line. Apple's prices generally reflect a premium product delivered and support by a premium route. Of course, you get to choose whether or not you actually want any of that or not. Don't like it? Then don't moan about Apple's pricing, go by Acer or something more budget.
The iPad may make it on its own merits or not. For sure, there will be those that buy it just because. Others will not. Who cares really? None of this is newsworthy, just a bit of muck-raking for the fun of seeing the anti-anything-Apple got into the ritual mouth-frothing at the latest morsel to vent their faux rage at. Oh well, if it floats you boat, I suppose.
@RegisterFail
"it's a much lower performer than the majority of Netbooks which costs half the price"
...and which don't have a touch screen, have a bloated resource-hog of an OS and require a reinstall of Windows every 6 months (or they slow to a crawl) and are mostly just used for email and a little light surfing.
RE: @RegisterFail
My bloated resource-hog of an OS is currently using 278MB of the 1GB RAM on my netbook, including a browser with 5 tabs open, e-mail client and PDF reader. It's still running perfectly on the XP install I did almost 2 years ago.
While it is easy to get a Windows installation bogged down with so much crap that reinstallation is the only option, it's equally possible to keep a Windows install bloat-free and running smoothly. The only difference between the two is the user.
Or for even less
You can buy an linux one that is only missing the touch screen.
Religion
Apple is a religion whose followers will buy whatever they sell, regardless of price or function. It is pointless to argue with those who have seen the light and if they are happy, does it really matter?
This news just in...
Company charges customers more for assembled product than it cost them to produce it.
And in other news, Apple accused in undercover operation by the 'anti cruelty to pixies league' of literally squeezing pixies dry to obtain their magical juices!
Gates Should Pipe Down
Gates just wishes he'd done it. Remember the prediction of Tablet PCs being the dominant device by 2005? And the best we have is Steve Ballmer's prototype photo-frame PC, that he couldn't even use, in 2010.
The 'tards on here might not like Apple kit, but Apple did it first and they did it better, and it just bites, doesn't it? See you when everyone else catches up!
Apple didn't do it first
Ok, so you point out the MS made tablet PCs many years ago, and they didn't sell.... but apple did is first?
Some thing wrong there.
Also, Arcos 9, Balmar at CES? Clearly these are also tablet PCs with the nicer hardware that is now avalible, and yet... apple did it first?
I can go buy the archos 9 right now. Can I buy an iPad?
I like to argue, and this is providing me with much entertainment. Apple fans live in some magical world where the things Steve says are true. Only, for the rest of us in the REAL world we know he lies.
Just look what he said about netbooks. Under powered with low quality screens. I'm sorry steve, but thats just not true. Mine has a better screen then the iPad (higher res and wide screen) and way more processing power.
The iPad is just a big iPhone, its not the magical wonderfull thing steve tells you it is. It can't even do flash.... lots of flash on the web. Sliver light?
Re: Gates Should Pipe Down
hehe... Apple are the latest newcomer to the tablet market, perhaps the iPhone GUI lends itself to a tablet format better than all the tablet versions of Windows, better than Android, Symbian etc. but there's nothing new about it, nothing exciting (I think the border is too fat personally), I suspect that MS will let Apple spend a huge amount of money telling everybody to buy a tablet then they will release the Courier, which is far more inovative, folds up smaller etc. the tablet has (so far) always been a flop, is the Apple interface so good that people will forget this?
IMNSHO the tablet has always failed because it's too big but... dichotomy... people like big screens, therefore the iPad will fail and a folding book like the Courier will succeed.
In case you hadn't noticed
...the iPad is NOT A TABLET PC.
And why do people keep claiming it offers poor performance, what benchmarks are you using for this assessment? We have no idea what Apple's SoC can do at this point, but we can bet it's decently powerful and nicely power efficient.
Remarkable.
Given that they have no idea what is actually inside an iPad as NOT A SINGLE FUCKER OUTSIDE OF APPLE HAS ACCESS TO ONE.
Pure BS guesswork.
Not quite.
Partially right - partially wrong.
http://blog.missionrepair.com/2010/02/01/ipad-camera-rumor-becoming-a-reality-we-think-so/
Granted, they don't have every part, but they have some.
another pointless Apple article designed to cause an argument
I'm sure the Reg like nothing more than trying to cause an Apple-based argument.
Every article is worded as a dig so that the fanbois will respond and then the Linux/MS fanbois will counter.
Apple makes a lot of money, they do this by selling the things they make for a profit, it's not really a unique business model. No-one complains that Porches are too expensive despite the fact there are cheaper cars that are faster so I can't fathom why so many people get upset when ever Apple do anything.
The difference is...
Porsches actually cost more to produce than the cheaper faster cars. They don't enjoy a 40%+ mark up like Apple do. Apple has by far the highest mark up of any vendor in this market. They milk their customers for every cent. The thing is people are daft enough to pay, which just encourages them to continue with practice. Not sure they are going to get away with it with the iPad though.
Re: Neill Mitchell
"They milk their customers for every cent. [...] Not sure they are going to get away with it with the iPad though."
Of course they'll get away with it. No one has figured out what the iPad is even for yet and already the media are fawning over it as if it has the capability to raise their relatives from the dead.
Really?
Seems to me that it's actually getting quite a lot of flak in the media.
I was really surprised at a recent Wired article called "Ten reasons not to buy an iPad". However, far from matching the title, the article actually tried to justify the 10 flaws with some really tenuous spin. For the first time there were dozens and dozens of comments saying the article was total rubbish and the iPad is a disappointment. It's the first time I've seen more negative comments than positive with a Apple based Wired article. It's usually fanboy city.
I seriously doubt this sell anywhere near the numbers Apple is used to. I guess only time will tell.
Trolls
My my, it's a trolls convention - there's a veritable bridge full of them in this article alone. A load of people dislike Apple kit so much that they just have to come and comment about it.
Bitter and twisted much?
And yet..
Here you are!!!!
Pot, Kettle, no emmited photons!!!
Typical Apple control freak
Negative opinions not allowed.
(Jobs 10:4)
... but its more than just manufacturing cost
The price of a product does not only include manufacturing cost, but also the cost of labor, the cost of producing intellectual property, the development cost, advertising, marketing, transportation and packaging. So these estimates of profit are not accurate as they do not consider any one of these additional cost in this "rip" analysis. But then again its an Apple product and they should make profit on the demand of their product. You are not only paying for the product and its capability but also for the brand name and the expected reputation that you think you will have owning a Apple product. That is how a lot of people justify the cost, if they think it is an expensive product. :)
Goodwill
In accounting terms goodwill is the difference between what a company is actually worth (assets less liabilities) and what you actually pay for it. An intangible asset.
iPad sale price = cost of production + non production costs + reasonable profit margin + tax + Apple badge
In this case, apple badge = goodwill per item.
Christ, don't ANY of you know
...that the price is WHAT PEOPLE ARE PREPARED TO PAY, not what you want it to be or what it cost you to make and sell something. Are you all this baffled when buying or selling houses?
OMG
Quite frankly I'm shocked and disgusted that Apple, as a company, are attempting to make a profit on their products. Who the hell do they think they are?
Diferent horses for diferent courses...
I would suggest diferent products for diferent people:
With iPad I can set up their facebook so they can see their grandkids pictures, set up email so they can email from their comfy sofa etc.
They don't care if they can install random game from random company, or random application, but they do care that once something is set up; it works seamlessly everytime without them needing to uderstand how, or care how! and if something does go wrong they want to be able to phone a person who understands the product to get it fixed.
Personally I'd rather have a linux O/S on the hardware that I can tweak and customise, occasionally break and fix, but I work in IT and enjoy doing that. Others don't!
Grandparents - huuuuge market
The population is ageing, so we keep getting told. There will be more grandparents and great grand parents than ever in the coming years. The silver surfer is an ideal market for this product, i completely agree.
My grandparents live a couple of hours away from me, my sister lives further away still in the opposite direction, and my uncle and cousins an hour from them, but not in the direction of me or my sister. They try and stay in touch by email but my grandfather, much as he likes to think he is an IT pro, manages to make things worse more than he makes them better. Something fully locked down thats really easy to use would mean he couldnt mess it up, and my grandmother wouldnt be too scared to use it on her own.
Not sure on the ergonomics of it for oldies though. Arthrytic fingers might struggle to hold it and type with the other hand while they perch on the edge of their favourite chair, which they insist on using despite the fact that when they sit back properly they cant get back out of it.
oh... and re the "theres loads of flash on the internet" ... flash is blocked here at work. I dont miss it.
3g costs
Take 3G for eaxmple it probably costs apple a bit more than only material to get it in there.
What about extra software, are there any licenses to pay off, do the insides require smaller componants or a complete rework (R&D costs) to fit more in or power it effectivly?
Excited & disappointed
I am both excited and disappointed in the iPad, though I only know what I have read. The device sounds like an enlarged iPod Touch. My wife has one and I can see how an enlarged iPod Touch would be a great device, bigger screen, easier to read, easier to use. I would get one for those reasons alone. But I also would like to see other features on it. I would like to be able to write on it with an electronic pen, like the Tablet PCs, and then convert those notes into Word. That is the application that I want most, at a much lower price than a Tablet PC, and in an Apple device that I can use with my Mac Book Pro. I would enjoy reading more about features that the device needs to have.
Its quite simple
If you think it is too expensive, don't buy it.
You options, if you still want a tablet (I'd like one), are to buy from elsewhere, or to make your own.
Good luck on the second one.....
Hmmm
Shoddy reporting... Costs of parts does not eaqual cost of device. Even if Apple were making 100% profit on the device, iTunes doesn't make them any money so how else are they gonna make cash? Xbox and PS3 both make a huge loss on the consoles (initially anyway), cos they recoup the costs on the games they sell at a huge mark-up, whereas Apple don't have this extended income in any real fashion.
I've never checked the specs of the Archos 9 before. Not exactly Netbook, but not too far off - they're cool! 60Gb HDD, widescreen 1080p (on a 1024x600 pixel screen - how does that work?) All that's missing is an HDMI port and 3G sim slot to really confirm to all the iPad-beatingness of it. That and the same amount of advertising grunt they have in Apple and no-one would buy Steve Job's latest gizzet.
Saying that... the Archos 9 hasn't got an Apple badge on the back. But then I did get some free ones with my iPod so I could just stick them on there...
It's *all* about the interface.
Turn the problem on its head. The parts are <50% of the cost of the product. So what.
Internal hardware on modern PCs can vary quite a bit. Single, dual, quad, whatever core. 10s of MB, 100s of MB RAM, graphics from squalid to near IMAX level. Printers, digitisers, video capture etc. You can add stuff almost at will.
But they all run Windows.Why. Because if they don't people have to start making *choices* and some of their choices would not be inter-operable, and they'd have to learn a different UI (doesn't matter if better or worse, its that it's *different*).
MS insisted suppliers supply windows to the point where now customers *insist* they supply Windows and it's unlikely *any* OS would achieve significant desktop penetration without a fairly detailed (and regulalry updated) "Windows compatability" mode. It's how MS stuffed Word Perfect, AmiPro, 123 etc. MS know this. Mixing up *their* UI every few years to frustrate exactly this sort of thing.
A note to those non marketing types. "Price" is one of the variables you can use to differentiate a product. Yes some people will not buy some products if it is not expensive *enough* (BTW MS maintain that *any* tablet has to have a *minimum* weight as users will feel it is too flimsy otherwise). the standar definition of the *right* price is the one with give maximum *profit*
Of *course* Apple could license their OS and UI. But that would put them in *real* competition with MS (IIRC MS own about 17% of them) and have to start worrying about device level compatibility issues.
Why try to train a cow for show jumping when milking it is a lot easier.
Netbooks aren't better at anything!
Yeah right Steve, except say, writing this comment out in a word processor whilst referring to the web page article, yes, at the same time! Oh and of course using the keyboard!
'Gates reckoned a mix of voice, pen and a real keyboard was the way forward.'
For once I have to agree with Bill, it's all about the keyboard, if I can't type, it's a phone and I avoid using my phone for browsing and email because I can't type.
Voice would be handy, but in public, I'd still need the keyboard and I can type faster than I can write, so that makes the pen redundant.
As for the iPad, if I can't use it for work, and I can't use it for recreation, what is it for?
Who iPad is for...
From Dan Gruber; "All this argument over whether the iPad is too simple — if anything it’s probably still too complex."
http://daringfireball.net/linked/2010/02/11/facebook-login
He's right. Mr and Mrs Joe 'Average' Public can barely use a fucking web browser! Modern computer GUI's are simply too complicated for most of them. Start throwing terms like "security" or "vulnerability" or "runtime" or even "plugin", they panic! This wasn't designed for you, Conor. It was designed with Mr and Mrs Average in mind. This is for people like a 30 year old I know. They haven't the first fucking clue and know as much; they don't even pretend. they use Windows, I currently have them running 7, which whilst an improvement it still confounds them. OSX would be no better, and neither would any of the Linux Desktops. They've played with a number of phones and struggled to get on with any of them , as I type they are debating debating whether or not to get an iPhone; they already have a first generation iPod Touch and *like* how it works. they're not stupid; they're a SEN teacher with no interest in computers whatsoever. They are the iPad's target demographic. Those that want to surf the net, communicate with email and buy music from iTunes (I told them that Amazon is often cheaper and their response was "Yeah, but its another username and password and another system to learn!"). I'd agree with Gruber, the problem with the iPad isn't that it's too simple and not useful, it's that it might still be too complicated.
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