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Apple's iPad Costs Under $300 To Build, $499 To Buy

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News Posted: Mon, Feb 1 2010 12:45 PM
We have already discussed our hopes and dreams for the future of theiPad, and while we don't really feel that it's a homerun of a device inits current state, there's no doubt that the allure of Apple alone willhelp the company sell more than a few of these once then go on sale inunder 2 months. The real question, however, is exactly how profitablethese will be for Apple, given that the $499 price was seen as "low" bySteve Jobs and "high" from most everyone else that we've spoken to.

According to a bill of materials analysis by Brian Marshall ofBroadPoint AmTech, the cost of the goods inside of Apple's 16GBWi-Fi-only tablet is just $270.15. Apple plans to sell the device for$499. Of course, that gap doesn't take all of the R&D costs that ittook to create the iPad into consideration, but it's safe to say thatApple won't be losing money on the hardware as Sony has done with theirPlayStation 3 console. The report notes that the cost of building onecould be seen as $20 higher if you build in an allowance forunder-warranty service costs.



As you would probably expect, the most expensive part of the whole iPadwas the 9.7" IPS panel, which was listed at right around $100. The 16GBof flash storage was cited at $25, while the physical case was another$25. Amazingly, the A4 CPU that we're so excited about was listed atjust $15, which makes it very viable for a whole slew of upcominghandheld devices. These insanely high profit margins are par for thecourse for Apple, and in fact, the iPhone 3GS makes even more moneyper-unit-sold for the company than the iPad. This report also makesclear that Apple has some room to eventually lower the asking pricehere if sales don't go as well as expected, but we figure the companywill wait at least 6-12 months before pulling that lever.
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Not surprised, I would expect the price to come down on this device, like it did with the 1st generation iPhone. Also remember that Apple is going to be spending A LOT of money on advertising and marketing for this device.

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I don't think that the margin is excessive. Apple's overall profits are not astronomical.

I could never live with having someone dictate what apps can make it to my app store though.

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rapid1 replied on Tue, Feb 2 2010 11:50 AM

Yeah; I think the price will come down pretty fast. I also expect a second version pretty quickly as well. The way Apple works in this or these platforms (truly mobile), seems in a large way too require feedback. The second version of the iPhone took a bit but the 3rd was fast.

The one big thing about all of this is this. We or the greatest amount of us I would imagine are not surprised by the UM and or tablets. They are not actually new at least as a concept. However; right now the general consumer has realized they are or will be soon a reality. So if you are an OEM I would think with minimal advertising and good reviews you could jump all over this right now.

This mean in a recognition way for the device generally Apple paid your bill to the greatest percentage already. However; you have very little time to get this to market now, to capitalize on this. Your device also has to be sufficiently more capable than the Apple device.

As far as a profit margin this is not excessive for a new product at all. You have a decent size R&D budget to recover still. You also have a future R&D budget to pre-compensate for, so that you can update it in the needed ways, and get out a seen capability model as version 2 pretty quickly as well.

On this device I think Apple got caught up in there own hype and rushed this one. Of course this also in many cases seem to be there common practice. Blow out a device on seen capabilities, see what the market really wants, update said device accordingly, then bang you have an instant hit.

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The price isn't too bad with everything considered. Too bad the device they are pushing for that price isn't very expandable or worth wild. This device will be nice when they rework and get the price down to a normal person standard.

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Apple is making a profit on one of their products? Curse them! I'm sure their stockholders will have some harsh words for the management! Making a profit... how un-American can you get?

Mr. Marshall's estimate reminds me of the APA and consuite chatter (ask your grandparents, kiddies) in 1975, commenting on the $10 price tag of TSR's new release, Dungeons & Dragons. Enormous fanboys who enjoyed holding forth in such venues proclaimed that they could produce it for $2, and therefore should sell it for under $5. TSR and their subsequent owners ignored them and rightfully so. And I just got offered $200 for my beige three-book set.


"I didn't cry when Bambi's mother was shot... but I cried when HAL was turned off."

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"Insanely high profit margins?" I'm no economist, but I was under the impression that a 50% profit on a product was the borderline of high and normal. Personally, that's a lot more reasonable than I expected, given what their iphones go for.

Now, the question is, is it really another $100 to put another $25 worth of 16GB flash in there? And $130 for some 3G?

I still see no use for it until they add some multitasking, though. I won't start drooling till then.

><((((">Lev Astov

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Lev, I agree. Consumers should not have to pay $130 for something that (1) should have been included with the base configuration in the first place and (2) limits them to the AT&T 3G network, and costs an additional $30/month (or $15 for a very limited 250MB).

>

Lol, agreed Clem. Apple charges that much money because people are willing to pay. But I have a feeling that the $500 iPad is going to be tough to swallow for the mainstream consumer.

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I don't like the trend in the industry lately, of guessing what it may cost for a company to put together a product (on the manufacturing side), and then, ignoring any other costs associated with the product, and pontificating on whether we think we're being "fairly" charged.  This is ridiculous to me.  It's not even as if these reports are definitive.  They're estimates and do not include internal costs a company may attach to any number of factors (we know Apple pours a large amount of dollars into R&D that never sees the light of day). 

At the end of the day, I LIKE these reports as general analysis, but like using Zillow.com to ballpark property values... there is so much more to consider.  ANY company is allowed to charge ANY amount over their cost for a product, even if its for something like software that comprises the lowest degree of cost after authorship if distributed digitally. Right now, we've been witness to industries, like the consoles, where players like Nintendo make profits on their hardware from day one, while others like Microsoft and Sony took losses for years as an investment.  Every industry is different.  It's up to each company to decide for themselves how long they plan to be around, and what degree of profit allows them to be profitable, competitive, and sustainable as an enterprise.

That was disturbs me about the Kindle.  I honestly hope Amazon knows what its doing with its Whispernet costs. Building free data charges into the cost of each purchase, being so dependent on volume content sales, frightened of hardware abuse, and all the other factors sounds like a bet I'd never want to make if I were its CEO. Whenever I think about the business of profit, even as a web professional, I always think of my responsibility to be THERE for my customers down the road.  My customers shouldn't be thinking about whether I'm profitable.  That's MY job. If suddenly my business model implodes and I'm gone... I shouldn't be looking for anyone to bail me out.  I heard a recent statistic that Apple is responsible for 90% of all computer purchases over $1,000 according to NPD in Q4 2009. Even if the data doesn't cover all sales channels, my first, visceral reaction was concern over the state of the rest of the industry... not thoughts that Apple was charging too much.

The market shakes out over-priced blow-hard products that don't offer a clear value-proposition.  That's the nature of capitalism.  But, companies that attempt to race each other to the bottom also appear every so often. These battles often prove very damaging and allow companies like Apple to thrive.

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Well apple has to make a profit somehow, they are innovators and deserve all the praise. Also if ppl do not really like the price tag they will reduce the price just like they did with the iphone at the beginning.

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