Originally Posted by Curmudgeon
"A segment of fiberglass is said to be between $5 and $10 cheaper than a magnesium-aluminum one, and an entire notebook could see $20 in savings on the production end with the use of fiberglass. That could equate to savings of $50 to $100 at retail, according to Taiwan fiberglass maker Mitak Precision."
I'm most definitely not a business man. So how does this work? How does $5 to $10 turn into $50 to $100?
Originally Posted by Eriamjh
It happened in 2010 with the MacBook Airs. I freakin' love hearing PC vendors complain they can't complete with Apple on price!
Markup, baby. Markup. Although I think the 10x margin is exaggerated.
Originally Posted by JeffDM
It might not be exaggerated, they have to ammortize the cost of designing the part, making the molds and other custom tooling, startup costs, shipping etc. The incremental cost of the part doesn't reflect the entire cost of getting the part made.
Originally Posted by island hermit
With today's tight margins I doubt if it would add more than $45.
I think the author was just pulling figures out of his ass... a little hyperbole adds some drama...
Originally Posted by Curmudgeon
Even if the numbers are exaggerated, I still don't get it. $10 is $10. How does it become $100. Remember this is a savings, right? So the case costs $10 less to make in fiberglass than of metal. How does this become a $100 savings at retail? It's still just a savings of $10.
It is disingenuous to isolate the cost of a part then try to extrapolate the contribution to the retail price of the finished product. The COGS (Cost of Goods Sold) includes much more than parts: cost of money; manufacturing; distribution; warehousing; returns... to mention a few of the major ones.
It's been a while, but back in the late 1980s Apple provided its best retailers with a gross profit margin of about 20% -- For an Apple product the reseller sold for $100 he paid Apple $80 with net 30 day terms.
If you were agile, and consistent in your forecasts you could turn your inventory fast enough that you could make close to the 20%, less shipping, space for inventory, inventory handling costs (shipping, receiving, burn in, testing). Computers in those days were not very reliable out of the box.
Usually, though a reseller ended up sitting on a lot of inventory with bills to the manufacturer coming due. You could negotiate returns or delay forecasted/contracted shipments -- but there was shipping costs, a restocking fee and higher unit cost (lower margin) for not meeting your targets.
As you couldn't discount Apple products, many resellers would sell an Apple product at full price, packaged with software and accessories at severely discounted prices. Others would take loans from 3rd-parties to finance their inventory say at 3-5%.
So the reseller's Gross margin of 20% rapidly deteriorated -- the final costs being the 2-5% credit card fee when you sold the product. Any customer returns to the reseller were very costly over-and-above the normally cost structure.
In the days when there was a computer reseller on every corner, a good reseller was lucky to get 7-10% net margin on off-the-shelf products.
I suspect that's about what the Best Buys and Targets realize, today.
By comparison, a Safeway (or other) supermarket is doing a fantastic job if it can reach 1%, yes one percent net margin.
The above observations, admittedly, are dated -- and I've only discussed the direct product costs.
In today's world (using rounded numbers) Apple sells an iPad for $500 and pays roughly half that for parts. The completely manufactured and packaged iPad, likely costs Apple about $300.
Apple probably sells that iPad to resellers for $400 realizing about 30% plus gross margin on sales of its lowest margin iPad through 3rd-party resellers.
The more expensive iPads have higher margins and Apple direct sales through their stores increases the overall Apple gross margin for the iPad line to say, 40%.
So you do the calculations on what adding or removing a $10 part would do to the retail price -- all things considered.
BTW, some minutes ago AAPL market cap was within $14 Billion of XOM.