iPod touch teardown reveals hefty margins, no hidden Bluetooth

[AppleInsider]

Component and manufacturing costs for Apple's new 8GB iPod touch media player account for only $155 of the device's $299 retail price, according to a fresh product teardown from iSuppli Corp.

The research firm notes that the $44 touchscreen and sensors, which are sourced from the combination of German-based Balda and other Far Eastern suppliers, are the most expensive components of the player, accounting for approximately 28 percent of the product's total cost.

"Functionally, the Apple iPod touch is an iPhone minus several features, including cell-phone capability, Bluetooth and certain software elements," said Andrew Rassweiler, teardown services manager and principal analyst for iSuppli. "Otherwise, the core features of the iPhone user experience are all present in the iPod touch, including orientation sensing, web surfing via Wi-Fi and the product’s signature feature: a 3.5-inch diagonal touch screen with multi-touch sensing."

Rassweiler estimates that Apple's iPod touch and iPhone designs share about 90 percent of the same components. Among them are a Samsung Electronics video/applications processor -- a chip based on an ARM microprocessor core and employing stacked on-package memory -- which comprises another 8.5 percent of the player's bill-of-matials at $13.19. The two touchscreen devices also share a power-management IC from NXP Semiconductors, costing $2.61 and accounting for 1.7 percent iPod touch's total cost.

However, the touch’s design differs from the iPhone in that it is uniquely optimized to meet its form-factor and cost requirements, iSuppli said in its report. To cut space usage, the touch makes use of some advanced packaging for its components not seen in the iPhone, including 0201 diodes and passive components in 01005 enclosures on the touch’s WLAN module.

"This is the first time iSuppli has seen these components in a product we’ve torn down,” Rassweiler added. "Apple products always seem to push the envelope in terms of space savings, and therefore we often first see the newest, most-compact components in Apple products."

See more high-quality iPod touch teardown photos.

The iPod touch design also pushes the envelope in terms of memory density; the high-end version of the product includes 16Gbytes of NAND flash memory, more than any product in the Apple iPod line. In contrast, the high-end iPhone offers only 8Gbytes of NAND flash.

Another notable difference is in the Printed Circuit Board (PCB) design. The touch employs a single PCB as opposed to the iPhone’s modular two-PCB design.

See more high-quality iPod touch teardown photos.

Other differences between the iPod touch and the iPhone include a new set of components to support the touch’s Wireless LAN (WLAN) functions and the location of the touch-screen circuitry on the main PCB -- rather than on the touch-screen module.

Based on the history of the various Apple iPod products, iSuppli has assumed a total lifetime of one year for the first-generation iPod touch. The firm estimates that if Apple follows its historic product pattern, it will manufacture about 8.5 million first-generation iPod touches during the approximate one-year period from the third quarter of 2007 through the beginning of the third quarter of 2008. At that time, iSuppli expects the first-generation touch will be replaced by a new product in the third quarter of 2008.



However, the firm hedged its bets by explaining that its forecast could be impacted if Apple chooses to replace the iPod touch sooner to coincide with the introduction of a new model of the iPhone. Furthermore, if the product lifetime extends to two years, production could increase to as much as 20 million units, the firm said.

"The touch, along with the nano, may drive Apple’s HDD-based iPods close to extinction in the near future,” added Chris Crotty, senior analyst, consumer electronics, for iSuppli. "While not a dollar-for-byte match for HDDs, flash now offers sufficient capacity that many consumers are willing to trade off storage for advanced displays and features."

[ View this article at AppleInsider.com ]

[nagromme]

Interesting - but remember that iSuppli is estimating just a "bag of parts."

The "high margins" you might calculate from that alone don't take into account a lot of OTHER costs. Such as:

* Manufacturing - turning those parts into something!

* Research and design (hardware and software) to create the product

* Transportation and storage (of parts and products)

* Packaging and marketing

* Customer service, technical support and warranty repairs

* Sales costs (running the web store and physical stores that sell the products)

Etc.

[Zandros]

So, it is confirmed now that Balda makes the touchscreen displays?

/Adrian

[tuneman07]

You would think apple could maybe have one of those things- what is that, oh yea, a sale. A discount of some sort at some time maybe? Nevermind Apple will never drop the price of anything for any reason.

[bkerkay]

Originally Posted by tuneman07

You would think apple could maybe have one of those things- what is that, oh yea, a sale. A discount of some sort at some time maybe? Nevermind Apple will never drop the price of anything for any reason.

And when Apple does reduce the price of something (iPhone), then the entire world falls apart and people get upset.

[zanshin]

Originally Posted by nagromme

Interesting - but remember that iSuppli is estimating just a "bag of parts."

The "high margins" you might calculate from that alone don't take into account a lot of OTHER costs. Such as:

* Manufacturing - turning those parts into something!

Line 1 states that "component and manufacturing costs" account for the stated percentage, but without severely security-compromised insider info, I can't imagine how they would actually arrive at an accurate figure there.

Initial product R&D, packaging and continued OS programming updates & development all have to be considered as part of the product cost. Depending on Apple, Inc. accounting practices (Standard cost v. normal costs, for example), marketing, store operations, and maybe even post-sale support of a product could be considered as general business costs and not figured into product costs by Apple.

[JeffDM]

I think there's also a chance that Apple can increase its design life by doing nothing other than dropping in higher capacity flash chips. I like the Touch, it's a really slick looking unit and it looks to be almost half the iPhone's thickness. Other than capacity, another drawback is that the display uses dithering for high color range, where the iPhone's display does not appear to do that, it's a better screen.

[ajprice]

You can get a touch cheaper than Apple's price (in the UK anyway). Try some price comparison sites, I've found the 8GB iPod touch for about £135 instead of £199, and 16GB for £235 instead of £299.

[shamino]

Originally Posted by zanshin

Line 1 states that "component and manufacturing costs" account for the stated percentage, but without severely security-compromised insider info, I can't imagine how they would actually arrive at an accurate figure there.

iSuppli seems to enjoy pulling numbers out of thin air. They assume they know what Apple paid for parts, even though they're probably paying based on a privately-negotiated contract, that nobody on the outside will ever be able to see.

Although I haven't seen their breakdown for the iPod Touch, iSupply typically counts software as a zero-cost item, because nothing physical is produced as a part of its distribution. (Their MacBook teardown counts Mac OS and iLife as $5 - the cost of the DVD media.) Needless to say, the iPod Touch's software suite cost a lot of money to develop, and part of the price covers all that R&D. Given that this particular software package is one of the key distinguishing features of the product, treating it as a free component is extremely misleading, to say the least.

Finally, it is very misleading to call the "retail price minus bag-of-parts price" a "margin". Gross margins take into account all costs, not just what the company theoretically paid for unassembled, untested parts.

[DaveGee]

Originally Posted by tuneman07

You would think apple could maybe have one of those things- what is that, oh yea, a sale. A discount of some sort at some time maybe? Nevermind Apple will never drop the price of anything for any reason.

And somehow this comes as a shock to you?!

[Joseph_xxl]

Originally Posted by bkerkay

And when Apple does reduce the price of something (iPhone), then the entire world falls apart and people get upset.

Great point. How can we EVER forget all of the bitching and crying people did when the price dropped? SJ will never do that again!

[Eriamjh]

0201 components are tiny. I did not even know that 01005 components even existed.

For reference, an 0201 component is 0.020" by 0.010" across. That means that 01005s are 25% the size. 01005 components are 0.25mm x 0.125mm. That is freakin' small.

[suhail]

Originally Posted by nagromme

Interesting - but remember that iSuppli is estimating just a "bag of parts."

The "high margins" you might calculate from that alone don't take into account a lot of OTHER costs. Such as:

* Manufacturing - turning those parts into something!

* Research and design (hardware and software) to create the product

* Transportation and storage (of parts and products)

* Packaging and marketing

* Customer service, technical support and warranty repairs

* Sales costs (running the web store and physical stores that sell the products)

Etc.

let's not forget:
- Patents
- Future patent infringement lawsuits

[astro]

i find it hilarious that the whining about apple never having a sale comes right after its annual, black friday sale.

with discounts on computers and ipods, and other things apple.

annual. sale.

[JeffDM]

Originally Posted by astro

i find it hilarious that the whining about apple never having a sale comes right after its annual, black friday sale.

with discounts on computers and ipods, and other things apple.

annual. sale.

With such a meager discount, I can hardly hold it against anyone if they forgot. It's a easier to order from some other web store that doesn't have locations in your state. You get the same "discount" year-round that way.

[akhomerun]

i don't see why these are considered hefty margins. these are only manufacturing and component costs. it doesn't take into account R&D, customer service, shipping/transportation, packaging, and the general costs of doing business (taxes, rent, maintenance, etc for all buildings apple owns). it also doesn't take into account the fact that most iPods are sold through authorized retailers meaning that there has to be something in it for the retailers as well.

after all that is said and done, the apple's still in it to not only make profit immediately but to save for the future. you can't make money unless you spend money.

almost all products in general have to be sold for about double their manufacturing cost. i fail to see why this is any different.

[JeffDM]

Originally Posted by akhomerun

almost all products in general have to be sold for about double their manufacturing cost. i fail to see why this is any different.

Part of the problem is people misreading what it is, But I'm not really sure why iSuppli does this and why it's almost exclusively the Apple products that the web news site pick up on them. I guess the Apple news sites pick up on them to show Apple's doing well and making money, other sites pick up on them to "show" people that they're getting ripped off. The responses are pretty predictable all around.

[JeffDM]

Originally Posted by Eriamjh

0201 components are tiny. I did not even know that 01005 components even existed.

For reference, an 0201 component is 0.020" by 0.010" across. That means that 01005s are 25% the size. 01005 components are 0.25mm x 0.125mm. That is freakin' small.

It's hard for me to imagine making discrete devices that small, as well as making a machine that can repeatably manipulate parts that small.

[echosonic]

Originally Posted by JeffDM

With such a meager discount, I can hardly hold it against anyone if they forgot. It's a easier to order from some other web store that doesn't have locations in your state. You get the same "discount" year-round that way.

it will never cease to amaze me how some people will find a reason to gripe no matter what. First, its that the PRICE is too high. No SALES....then they have a sale but it isnt GOOD ENOUGH a sale to make you happy.

customers have a right to make the decision to buy or not buy.

customers do not have a right to set the price.

so far, each successive fiscal quarter has proven that more customers are opting to buy than the year before.

pretty simple indicator that Apple is doing it right.

[aegisdesign]

Originally Posted by Eriamjh

0201 components are tiny. I did not even know that 01005 components even existed.

For reference, an 0201 component is 0.020" by 0.010" across. That means that 01005s are 25% the size. 01005 components are 0.25mm x 0.125mm. That is freakin' small.

For me, that's the interesting thing in this. The iPod Touch is using more advanced manufacturing technology than the iPhone which gives them room to cram more components in the iPhone or make it smaller when they get around to using the same modern components.

[roehlstation]

Am I supposed to be surprised?

Wouldn't this be true with almost anything? (Only cars really have more value in individual parts than unit as whole)

If I build a dining room table out of wood that cost me $150 in wood and sell it for $1000 is that bad too?

[JeffDM]

Originally Posted by roehlstation

(Only cars really have more value in individual parts than unit as whole)

Aren't you going on retail price? If you go by small volume / retail price on parts, then everything has more value in individual parts than the whole unit.

[roehlstation]

Originally Posted by JeffDM

Aren't you going on retail price? If you go by small volume / retail price on parts, then everything has more value in individual parts than the whole unit.

Sure, but it is car more prevolent in the Auto Industry, I guess Microsoft sold a lot of XBoxes and Zunes for a loss as well, trying to artificially create demand. The iPod Touch does have a around a 180% markup based on those numbers, but really, that isn't as bad as a lot of other things, say for instance....

You buy a 20 oz Coke at a restaurant for something like $2.00, that Coke only cost the restaurant a nickel. So that is a 4000% markup. My dining room table analogy is 667% markup, look at any Amish built furniture you will see those numbers easily. Something from Ethan Allan might be closer to 1000% markup. This is purely based off material cost. Except the Coke that already has the labor figured in.

[JeffDM]

Originally Posted by roehlstation

Sure, but it is car more prevolent in the Auto Industry, I guess Microsoft sold a lot of XBoxes and Zunes for a loss as well, trying to artificially create demand. The iPod Touch does have a around a 180% markup based on those numbers, but really, that isn't as bad as a lot of other things, say for instance....

That's not what I mean.

Try to buy single piece quantities of an iPod hard drive, a replacement screen, touch pad or other major pieces of the device. The cost can add up quickly, beyond the cost of getting a new one. It's the same thing as trying to put together a car buying the parts in single piece quantities. It's more visible for cars because very few people seem to bother fixing consumer electronics because they're so cheap, not many people can replace a car so easily. Buying a new hard drive for a 5th gen iPod is probably more expensive than buying a used, fully functional iPod, the suckers drop in value at an astonishing rate.

You buy a 20 oz Coke at a restaurant for something like $2.00, that Coke only cost the restaurant a nickel. So that is a 4000% markup. My dining room table analogy is 667% markup, look at any Amish built furniture you will see those numbers easily. Something from Ethan Allan might be closer to 1000% markup. This is purely based off material cost. Except the Coke that already has the labor figured in.

Raw materials is different than finished component. A log in the woods isn't worth much, but a replacement leg for a chair has quite a few steps to get there.

[roehlstation]

Originally Posted by JeffDM

That's not what I mean.

Try to buy single piece quantities of an iPod hard drive, a replacement screen, touch pad or other major pieces of the device. The cost can add up quickly, beyond the cost of getting a new one. It's the same thing as trying to put together a car buying the parts in single piece quantities. It's more visible for cars because very few people seem to bother fixing consumer electronics because they're so cheap, not many people can replace a car so easily. Buying a new hard drive for a 5th gen iPod is probably more expensive than buying a used, fully functional iPod, the suckers drop in value at an astonishing rate.

....was going to continue, but what's the point.


High Fructose Corn Syrup is NOT raw materials.

[JeffDM]

Originally Posted by roehlstation

High Fructose Corn Syrup is NOT raw materials.

That not even in a comparable industry anyway.

[roehlstation]

Originally Posted by JeffDM

That not even in a comparable industry anyway.

The story is about the "high" margin, My point was that at 180% it is hardly the margin of 4000%, It doesn't matter at all what industry it is. If the iPod touch had the same margin as Coca-Cola the thing would cost over $6000. I'm questioning who determines that the margin is high? You'll find no less of a margin in many products made my Sony, Bose, or even Tiffany & Co. Apple is a premium brand that is what you get. The story talks about the cost of the components going into the unit as compared to the final cost, they don't take into account the labor, R&D, shipping, or the fact that the cost of all those components fluctuate daily, especially Flash memory. They built all of that into the cost to the end user. My original point about the Automobile industry points out that it is probably the only industry where these basic rules don't apply. Remember GM sold cars to everyone at the employee price, they sold a record number of cars and still managed to lose 8.6 Billion dollars.

[dfiler]

Let's not let up on AppleInsider for this type of shoddy reporting...

There is valuable information in iSuppli's numbers. However they are far from a complete costing and should not be used as a sole source of costs when computing margins.

The rest of the story is good. But please stop reporting this margins crap based purely on component costs.

I have plenty of love for you. But I'll be back here to ridicule the reporting whenever it stoops to this level of inaccuracy and sensationalism.

[tuneman07]

[QUOTE=echosonic;1186294]it will never cease to amaze me how some people will find a reason to gripe no matter what. First, its that the PRICE is too high. No SALES....then they have a sale but it isnt GOOD ENOUGH a sale to make you happy.

customers have a right to make the decision to buy or not buy.

customers do not have a right to set the price.

so far, each successive fiscal quarter has proven that more customers are opting to buy than the year before.

pretty simple indicator that Apple is doing it right.[/QUOTE

It never ceases to amaze me how some people will never admit Apple has done anything wrong ever in any way. Apple's black Friday "sale" is actually what brought their stinginess to my attention. I was all excited to see large discounts (its the first Black Friday sale I've ever paid attention to with Apple) the discounts were sad quite frankly. As for pop being sold at 4000 percent or whatnot yea I believe a large Coke at McD's costs about 12 cents in syrup, and percentage wise 3 bucks might be a lot more than that but its still only 3 bucks, things that are super cheap can't have 10 percent profit margins because that would amount to pennies and be pointless to sell. Basically I don't understand why Apple doesn't want to put an emphasis more on getting people to use their products- they have a ton of cash on hand, they are making a lot of money with these margins even if they aren't as high as reported they are still making a lot of money on each product. It wouldn't kill them to have the occasional sale to get some customers.

[roehlstation]

[QUOTE=tuneman07;1186549]

Originally Posted by echosonic

it will never cease to amaze me how some people will find a reason to gripe no matter what. First, its that the PRICE is too high. No SALES....then they have a sale but it isnt GOOD ENOUGH a sale to make you happy.

customers have a right to make the decision to buy or not buy.

customers do not have a right to set the price.

so far, each successive fiscal quarter has proven that more customers are opting to buy than the year before.

pretty simple indicator that Apple is doing it right.[/QUOTE

It never ceases to amaze me how some people will never admit Apple has done anything wrong ever in any way. Apple's black Friday "sale" is actually what brought their stinginess to my attention. I was all excited to see large discounts (its the first Black Friday sale I've ever paid attention to with Apple) the discounts were sad quite frankly. As for pop being sold at 4000 percent or whatnot yea I believe a large Coke at McD's costs about 12 cents in syrup, and percentage wise 3 bucks might be a lot more than that but its still only 3 bucks, things that are super cheap can't have 10 percent profit margins because that would amount to pennies and be pointless to sell. Basically I don't understand why Apple doesn't want to put an emphasis more on getting people to use their products- they have a ton of cash on hand, they are making a lot of money with these margins even if they aren't as high as reported they are still making a lot of money on each product. It wouldn't kill them to have the occasional sale to get some customers.

So you want Apple to sell at a loss then? Computers, even Apple computers, have a very, VERY tight margin, I work at a retail store that sells Macs and our margin for a Mac is only about 4%. That's right the government gets more in sales tax. It has been consistent for me for years now that the only thing I can get very deep discounts on are XServes I got nearly $1500 off the last XServe I bought. If you want a deal, buy a refurbished Apple product from Apple, they carry the same warranty a new one does and you know they have undergone more rigorous testing before sale. Apple has never run "sales" the best way to get deals is buy a closeout model from MacMall or get yourself an Apple sales rep, that is how I saved $1500 on the XServe.

[Flanker]

Originally Posted by tuneman07

You would think apple could maybe have one of those things- what is that, oh yea, a sale. A discount of some sort at some time maybe? Nevermind Apple will never drop the price of anything for any reason.

Didn't they knock $100-$200 off the price of the iPhone?
Or was it $300.....I don't remember exactly.

[JeffDM]

Originally Posted by roehlstation

So you want Apple to sell at a loss then? Computers, even Apple computers, have a very, VERY tight margin, I work at a retail store that sells Macs and our margin for a Mac is only about 4%. That's right the government gets more in sales tax.

That's the margin that Apple offers to retailers, they're known to be stingy to retailers like that. I think Apple's side of the equation is considerably more.

[JeffDM]

Originally Posted by roehlstation

The story is about the "high" margin, My point was that at 180% it is hardly the margin of 4000%, It doesn't matter at all what industry it is. If the iPod touch had the same margin as Coca-Cola the thing would cost over $6000. I'm questioning who determines that the margin is high?

I think the per industry comparison is correct. Comparing margins between different industries makes no more sense than comparing the buyer's price of two different kinds of products. If I can buy a Coke for $2, then why does Apple charge $599 for a Mac?