Apple's profit margin on Mac minis slimmer than usual

[AppleInsider]

Apple's latest Mac mini continues to demonstrate the company's capacity to develop personal computers that are both smaller and more attractive than those of its rivals, but achieving its sleeker design footprint comes at the expense of razor-thin profit margins, a new tear-down cost analysis reveals.

Market research firm iSuppli, which has made a name for itself in recent years by tearing apart the some of the hottest electronics products on the market and then performing an analysis of their component makeup, says the new entry-level $599 Mac mini carries a bill-of-materials of $376.20, which increases to $387.14 when manufacturing costs are added.

Assuming the study is accurate, that leaves Apple with just over $200 in margin potential before factoring in costs associated with hardware engineering, royalties and licensing fees, software development, software loading and test, shipping, logistics marketing and other supply channel fees.

“Unlike most desktop computers from other brands, the Mac Mini and, indeed, Apple’s entire Mac line make extensive use of components designed for notebook computers,” said Andrew Rassweiler, director and principal analyst for iSuppli. “This enables the Mini and other members of Apple’s computer line to achieve their very sleek and compact form factors, and to reduce energy consumption. However, the use of these components, along with other cost adders like software, yields a computer that is more expensive to make.”

For example, iSuppli notes that the Mac mini’s focus on mobile components starts at the top with its use of Intel Corp.’s Core 2 Duo P7350 microprocessor, which is designated as a mobile chip. The model dissected by the firm incorporated a 2GHz clock speed version the P7350, which carries an estimated price of $118.35. The high-end $799 Mac Mini features a 2.26GHz version of the microprocessor.

Another mobile microchip embedded in the Mac Mini is the Nvidia GeForce 9400M graphics and I/O controller hub, which carries an estimated price tag of $65.16. This is the same part commonly uses by Apple in its MacBook line, iSuppli notes.

Other mobile components in the Mac Mini that command a price premium include the 2.5-inch form factor Hard Disk Drive (HDD) and the slim Optical Disk Drive (ODD). The Hitachi 120GByte 2.5-inch-format HDD comes in at an estimated price of $46, while the ODD is priced at $32.



iSuppli also notes that in spite of the mini's use of some mobile components, and the latest energy-saving silicon process geometries, it sports a great deal of processing power. As a result, the diminutive desktop employs a 110-watt external power supply, representing a higher power usage than the first-generation model, which employed an 85-watt power supply.

“The new Mac Mini is a more powerful computer than the first-generation model, causing its peak power requirements to rise,” Rassweiler said. "On the other hand, the Mac Mini has earned its green designation as it consumes less than 13 watts when in idle mode."

A full cost analysis of the $599 Mac mini can be seen in the table above.

[ View this article at AppleInsider.com ]

[patroll]

So much for the Apple tax.

[tsirko]

the mini should be almost no profit product for apple! to introduce macindosh to the 90% of the world :S


apple tax sucks :S

[eAi]

The Mac Mini increased by £100+ here in the UK, which stopped me buying one...

It's $822 in the UK and $628.95 in the US (both prices including tax) - paying 30% more to buy in the UK hardly seems justified.

[brianus]

OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?

[kaioslider]

My guess is that Apple sees the mini as a means to gain market share. Apple really seems to do it's homework when it comes to market research (though it doesn't keep them from trying unknowns ie Cube). I can see this machine to be ideal for switchers, those who have used a PC all their lives, maybe lured to take a look at the mac b/c of the iPhone. It's a toe in the water kinda thing. Today a Mac Mini, tomorrow a 24" iMac, MacBook, or Mac Pro. I'd say that once you can get them to start using Mac OS X, you pretty much got'em.

[paxman]

Originally Posted by tsirko

the mini should be almost no profit product for apple! to introduce macindosh to the 90% of the world :S


apple tax sucks :S

'Apple Tax' is a silly term right up there with 'fanboy', the use of which signifies low intelligence, lack of insight and plain old laziness. Please, lets refrain from using stupid terminology whenever possible.

[Kasper]

Originally Posted by brianus

OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?

That's only for parts and manufacturing. These machines have to be developed, marketed, shipped, etc. Even if Apple sees a $150 profit, that's just 25%, which is well below the company average of the low-to-mid 30% range.

You can see in our mac price guide:

http://www.appleinsider.com/mac_price_guide/

that resellers are selling the $599 model for $549, which means that they buy the machine from Apple for just north of $500. So that suggests margins could be less than 20%. Alternatively, iSuppli could just be wrong in their assessment. Personally, I believe it costs Apple less to make the $599 Mac mini than iSuppli estimates.

K

[eAi]

Apple make about 70-80% profit in the UK, about 40% profit in the US (before marketing, distribution etc). Dell on the other hand make 6.5% (net) profit, HP 5%.

[stukdog]

I wish these people would stop being quoted. They are rarely accurate.

First, many of the parts that are in the Mac mini are also in the Macbook line. That means parts can be ordered in MUCH bigger quantities, decreasing the price. iSuppli has no idea the contracts Apple has with the part providers.

I remember a few months ago, they took apart the iPod Shuffle and made a mention of a brand new part that had never been seen and they weren't completely sure what it was used for. But somehow, they were still able to set a price even lacking this knowledge.

[anantksundaram]

Originally Posted by eAi

The Mac Mini increased by £100+ here in the UK, which stopped me buying one...

It's $822 in the UK and $628.95 in the US (both prices including tax) - paying 30% more to buy in the UK hardly seems justified.

We've been thru this a million times before.

There are four factors that contribute to this difference: (i) Your VAT is higher; (ii) Your retailing costs are higher; (iii) There is the $/£ exchange rate risk that necessitates some some padding; (iv) Many EU countries -- not sure about UK, though -- have laws the require the manufacturer to dispose/recycle their consumer electronic products; companies pass on this cost to the consumer.

Finally, this price difference is not unique to Apple.

[abby1448]

Originally Posted by brianus

OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?

The $387.14 is purely the cost of the hardware. There are also cost to assemble it, packaging, cost of the software (there's still cost even if the software is in house), cost of marketing and distribution. Also keep in mind that $599 is a retail price, distribution price (price that authorized reseller pay) is even lower than that. So yes, the margin is really thin for Mac Mini.

With that said, I can't help but grim knowing that I just pay $450 for the newest model of Mac Mini on a price mistake. Sweet

[anantksundaram]

Originally Posted by eAi

Apple make about 70-80% profit in the UK, about 40% profit in the US (before marketing, distribution etc). Dell on the other hand make 6.5% (net) profit, HP 5%.

Source?

[teckstud]

Who cares? Apple makes up for it by their ridiculous gross ups on their MacBook, iPhones , iPods, etc so that this means nothing. Not to mention the $10 Apple tax on the iPod Touch ugrade. Fanboys can defend all they want but the reality is Apple is overpriced for what is inside the devices.
Apple just dropped prices and they'er still to high. That white MacBook for $1000? Indeed!

[Dr Millmoss]

Originally Posted by Kasper

Personally, I believe it costs Apple less to make the $599 Mac mini than iSuppli estimates.

I suspect as much too. I don't know how iSupply estimates the cost of components, especially those that Apple has the leverage buy at substantial discounts.

[teckstud]

Originally Posted by paxman

'Apple Tax' is a silly term right up there with 'fanboy', the use of which signifies low intelligence, lack of insight and plain old laziness. Please, lets refrain from using stupid terminology whenever possible.

Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?

[Zandros]

Originally Posted by AppleInsider

The high-end $799 Mac Mini features a 2.26GHz version of the microprocessor.

It does not.

[anantksundaram]

Originally Posted by teckstud

Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?

Then what are you -- an Apple panboy?

[brianus]

Originally Posted by abby1448

The $387.14 is purely the cost of the hardware. There are also cost to assemble it, packaging, cost of the software (there's still cost even if the software is in house), cost of marketing and distribution. Also keep in mind that $599 is a retail price, distribution price (price that authorized reseller pay) is even lower than that. So yes, the margin is really thin for Mac Mini.

Well, manufacturing costs were included in the estimate. I assumed that included packaging and assembly. The software is basically the same as for all their other models so I'm not really sure how you quantify that for the Mini specifically. You mean like, specialized drivers or something? And we all know how much effort Apple puts into marketing the mini....

Good point about the distribution price though. I forgot about that.

Even if Apple sees a $150 profit, that's just 25%, which is well below the company average of the low-to-mid 30% range.

Is that a low percentage "for Apple" or for tech companies in general?

[8CoreWhore]

Mac Mini's are a gateway drug. Apple would sell them at a loss.

[8CoreWhore]

Originally Posted by Zandros

It does not.

It's an upgrade option.....

[hmurchison]

I still want to see a $499 Mac mini.

Yank the crappatastick nolongerSuperdrive and save me the cashola and grief.

The lady and I were talking about the rate of technological evolution last night. I waxed on about how excited I was when the first Gigabyte drives came with their $1200 pricing. We laughed about our high school days when a mobile phone meant carrying a 5lb battery around with the phone.

Today's youth have no idea about how rapidly changing the tech world is. It's entirely feasible that they see even more change within a decade of their adult lives.

With that in mind the profit margins of $500 computers should rise indeed. When you look at the integration that is happening it's becoming simple to build a low cost computer.

Case
Motherboard
CPU/GPU ondie
RAM/HDD
Physical interfaces
Software

Expansion boards go unused often, because everything has been built on the motherboard.

[MacTripper]

Originally Posted by Kasper

That's only for parts and manufacturing. These machines have to be developed, marketed, shipped, etc. Even if Apple sees a $150 profit, that's just 25%, which is well below the company average of the low-to-mid 30% range.

You can see in our mac price guide:

http://www.appleinsider.com/mac_price_guide/

that resellers are selling the $599 model for $549, which means that they buy the machine from Apple for just north of $500. So that suggests margins could be less than 20%. Alternatively, iSuppli could just be wrong in their assessment. Personally, I believe it costs Apple less to make the $599 Mac mini than iSuppli estimates.

K

My thoughts exactly, I guess when your a volume buyer like Apple, you can cut deals to get certain parts like -near end of life- parts at the seller costs. It works for the seller as they just break even and not have to dump the parts in a dumpster and charge more for the higher end/newer parts.

It works for Apple because they can make a lower end product designed like a loss leader or introductory Mac.
A lot of people who buy a Mini, are using their old PC tower parts, maybe even a KVM switch too.

The Mini, in my opinion, quickly outgrows itś limited performance and people trade up sooner, hopefully to a more profitable higher end Mac or even buy other high margin Apple products.

[Roos24]

Originally Posted by teckstud

Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?

Teckstud, you are a troll, believe me.

- You seem to hate everything Apple, and especially love to attack the iPhone (by the way, how's your new Pre doing?)
- Your English is second grade level: ... they'er still to high... (Sigh)
- With all the bitching, you still add the slogan "Once you go Mac, you never go back" to your postings.

But please don't leave us, we would miss you tremendously!

[fmaxwell]

About nine months ago, I purchased the previous generation Mac Mini for $599 to find out if I wanted to switch to the Mac after almost three decades of using Microsoft operating systems (MS-DOS and Windows).

I did. And I quickly decided that I wanted more computing horsepower, expandability, video performance, dual monitors, etc. So I shelled out $2900 for a used, but like-new, 8 core 2.8ghz Mac Pro (1.3TB hard drive, 8GB RAM, WiFi). I bought an external Firewire 800 1TB drive for Time Machine and an additional internal 1TB SATA drive. I added a second optical drive with Lightscribe. Then I wanted a Mac laptop, so I bought the white MacBook (2ghz, 120GB drive) and immediately upgraded the RAM to 4GB and the hard drive to 320GB/7200RPM).

And of course, there were software purchases, too.

Apple gets it: They understand that they could sell the Mac Minis at a loss and still come out ahead overall. Remember that Apple's goal is to maximize profit, not to maximize profit on on Mac Minis.

[hmurchison]

Originally Posted by fmaxwell

I did. And I quickly decided that I wanted more computing horsepower, expandability, video performance, dual monitors, etc. So I shelled out $2900 for a used, but like-new, 8 core 2.8ghz Mac Pro (1.3TB hard drive, 8GB RAM, WiFi). I bought an external Firewire 800 1TB drive for Time Machine and an additional internal 1TB SATA drive. I added a second optical drive with Lightscribe. Then I wanted a Mac laptop, so I bought the white MacBook (2ghz, 120GB drive) and immediately upgraded the RAM to 4GB and the hard drive to 320GB/7200RPM).

Geez that's a nice system. As expensive as the Mac Pro is I figure I'm headed on that path. I figured I'd be running Final Cut Pro by now but you know a car repair here and other needs make that harder. The mini though is a great little system and I swear if they don't keep their value. Often I'll find someone selling an Intel mini on craigslist (I have an RSS feed as an alert) and if there's a Intel mini in the $300s it's gone in a day or two.

They are still highly valued systems and highly capable.

[brucep]

Originally Posted by paxman

'Apple Tax' is a silly term right up there with 'fanboy', the use of which signifies low intelligence, lack of insight and plain old laziness. Please, lets refrain from using stupid terminology whenever possible.

Thank you. I could not find the words to say that. !!!!

And apple makes a fair profit on the mini. and by buying components in large volume's it may lower the price for all its products. So even if the mini isn't such a world beater, it has its place in the sun.
in fact instead of buying an apple TV i will buy the mini .

Just saying

[MacTripper]

Originally Posted by teckstud

Who cares? Apple makes up for it by their ridiculous gross ups on their MacBook, iPhones , iPods, etc so that this means nothing. Not to mention the $10 Apple tax on the iPod Touch ugrade. Fanboys can defend all they want but the reality is Apple is overpriced for what is inside the devices.
Apple just dropped prices and they'er still to high. That white MacBook for $1000? Indeed!

Actually except for the iPhone, Appleś prices are about equal to similar quality PC products.

The iPhone is really making Apple or AT&T a killing, to the tune of a missing $760 over a two year contract, itś hard to know who gets what part of that.

Perhaps why the lawmakers are looking into these exclusive carrier deals.

I rather much have Apple have a iPhone for nearly each carrier, like RIM does, a set price for the device and then allow carriers to compete for customers based upon price and service.

Right now we don have that and we are getting taken for a ride.

[abby1448]

Originally Posted by brianus

Well, manufacturing costs were included in the estimate. I assumed that included packaging and assembly. The software is basically the same as for all their other models so I'm not really sure how you quantify that for the Mini specifically. You mean like, specialized drivers or something? And we all know how much effort Apple puts into marketing the mini....

For each copy of the OSX, the Mac department would have to "pay" (allocate cost) to the software department. Essentially they are "buying" the OS from them, even though they are in the same company. That's how you do accounting with multiple departments. It's a same thing as HP would have to pay MS for the licensing of Vista. I think most people overlook this.

[Quadra 610]

Originally Posted by teckstud

Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?

What shortcoming?

When we consider the "whole package" of Mac + OS X, shortcomings often mean a lot less than they would otherwise.

[al_bundy]

Originally Posted by hmurchison

I still want to see a $499 Mac mini.

Yank the crappatastick nolongerSuperdrive and save me the cashola and grief.

The lady and I were talking about the rate of technological evolution last night. I waxed on about how excited I was when the first Gigabyte drives came with their $1200 pricing. We laughed about our high school days when a mobile phone meant carrying a 5lb battery around with the phone.

Today's youth have no idea about how rapidly changing the tech world is. It's entirely feasible that they see even more change within a decade of their adult lives.

With that in mind the profit margins of $500 computers should rise indeed. When you look at the integration that is happening it's becoming simple to build a low cost computer.

Case
Motherboard
CPU/GPU ondie
RAM/HDD
Physical interfaces
Software

Expansion boards go unused often, because everything has been built on the motherboard.

Intel's Larabee chips will ship next year. CPU, graphics and chipset all integrated in one CPU. instead of making multi-cores, they are going to make each core do it's own thing instead of making specialized chips for CPU and chipsets.

[patroll]

Originally Posted by teckstud

Who cares? Not to mention the $10 Apple tax on the iPod Touch ugrade.

Out of interest, are you tempted to buy the upgrade?

[brucep]

Originally Posted by teckstud

Who cares? Apple makes up for it by their ridiculous gross ups on their MacBook, iPhones , iPods, etc so that this means nothing. Not to mention the $10 Apple tax on the iPod Touch ugrade. Fanboys can defend all they want but the reality is Apple is overpriced for what is inside the devices.
Apple just dropped prices and they'er still to high. That white MacBook for $1000? Indeed!

OH i see now . Hit them hard and hit them low with great rare facts . The fanboy crack is classic teckstud . thank you

i will try later

[dagamer34]

A very important thing to remember is that Apple has an extensive array of Apple stores I. Which to display their products. The costs for a retail store that provides both sales AND support is immensive. It's large enough that no other computer manfacturere has anything like it. The cost for such a service must come from somewhere, however the ability to talk to a real human being about a problem with your computer should not be undervalued.

[teckstud]

Originally Posted by brucep

Thank you. I could not find the words to say that. !!!!

And apple makes a fair profit on the mini. and by buying components in large volume's it may lower the price for all its products. So even if the mini isn't such a world beater, it has its place in the sun.
in fact instead of buying an apple TV i will buy the mini .

Just saying

Defintiely buy the MacMini over theAppleTV anyday. The only thing missing is HDMI and an adapter can be had for very little. I wish I had.

[paxman]

Originally Posted by teckstud

Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?

I have never used the term 'troll' ever. But I don't object to it as much. At least when it is used as a verb. Apple Tax is just a dumb term designed to appeal on a base level against Apple's high prices. Or perceived high prices. I know you think Apple overcharges and you are perfectly entitled to that opinion. But in terms of the usage of the made up term in question, that is neither here nor there. As for Fanboy... do I really have to say anything? It is a kindergarten level gibe. I mean, explain it to me (intelligently, if you can. I know what an Apple fan (or fanatic in extreme cases) is. Apple fan = a fan of all things Apple (gender neutral). Fanboy - a boy that is a fan of something? A fan of boys?

[patroll]

Originally Posted by dagamer34

A very important thing to remember is that Apple has an extensive array of Apple stores I. Which to display their products. The costs for a retail store that provides both sales AND support is immensive. It's large enough that no other computer manfacturere has anything like it. The cost for such a service must come from somewhere, however the ability to talk to a real human being about a problem with your computer should not be undervalued.

Genius.

[imGayForSteveJobs]

Actually except for the iPhone, Appleś prices are about equal to similar quality PC products.

You guys said the same thing before Apple made the price cuts... So they were similarly priced before the cuts, and now they are still similar somehow? I think Apple realized they maxed out of customers who were willing to overpay so they had to lower it. (The answer is they are more expensive, still)

Here comes the "But I don't want cheap hardware" argument. Apple PC's use the same hardware, intel processors, nvidia graphics.. Now if they could only fix those display problems...

[teckstud]

Originally Posted by patroll

Out of interest, are you tempted to buy the upgrade?

I did last week- why? I live in New York- I'm used to paying high taxes on everything.

[e1618978]

Originally Posted by eAi

The Mac Mini increased by £100+ here in the UK, which stopped me buying one...

It's $822 in the UK and $628.95 in the US (both prices including tax) - paying 30% more to buy in the UK hardly seems justified.

Why include tax? Just because it lets you blame Apple for the fact that you live in a crappy high-tax country?