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Components for 4G LTE iPad estimated to cost $310, netting Apple 51% margins

post #1 of 62
Thread Starter 
Apple's third-generation iPad will have a slightly lower hardware-based profit margin of about 51 percent, based on a new estimate of hardware costs.

The analysis from UBM TechInsights suggests that a 16-gigabyte iPad with 4G LTE connectivity costs $310 in components, up from $270.86 for the original iPad, and $276.27 for the iPad 2 at their respective launches. That would mean that Apple's profit margins have been reduced from about 57 percent on its first two iPad models to 51 percent on the latest-generation tablet.

The most expensive component on the third-generation iPad is believed to be its high-resolution Retina Display. UBM has estimated that the display costs $70, followed by $30 for the battery and $25 for the touchscreen.

Other major component costs are estimated at $12.50 for the camera, $16 for NAND flash storage, $28 for the custom A5X processor, $8.50 for the SDRAM, and $7 for the Wi-Fi, Bluetooth and GPS radios.

The battery, in particular, has grown significantly from the iPad 2, as the latest model sports a capacity of 11,180 mAh, compared to 6,580 mAh for last year's model. The new iPad also has double the RAM of its predecessor, with 1 gigabyte, and has added high-speed LTE 4G wireless connectivity.




"The bottom line is the new iPad's margin should take a little hit because of some of the expensive adders like LTE, the high-res display and camera, a bigger battery and faster processor," said Jeff Brown, senior analyst at UBM TechInsights.

As for the 16-gigabyte iPad 2, which Apple will continue to sell for $100 less, the bill of materials for the 3G model is estimated to be $248.07, a price lower than last year's launch because component prices have fallen over the last 12 months. If accurate, the estimate would peg margins on the iPad 2 at 53 percent.

[ View article on AppleInsider ]
post #2 of 62
Quote:
netting Apple 51% margins

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

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post #3 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

Beat me to it!

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post #4 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

*sigh*

There's always this comment.



First, in figuring gross margins for a product things like R&D, advertising and software development are generally. not included.

The other costs you've mentioned are of course.

But, more than that. This tear down is only one perspective of a total analysis. I don't think anyone who does these is claiming Apple is actually making 50% on these devices. They are simply looking at the things they are able to analyze.

Chill.

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post #5 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

My thoughts exactly. The development time has to be taken into account, but too many times people see stuff like this and start talking about "greedy corporations." Don't get me wrong because there is greed in some corporations just as there is greed in many other areas of society. OTOH it's not a crime to want to make a profit. But I think this article overstates the profit because it fails to account for all of the expense that went into developing the ipad.
post #6 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetuating the lies that the trolls use.

Fixed it for you
post #7 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

+1 Never mind the real facts, just spread lies about how Apple is ripping everyone off... If anything companies that don't make the OS, but simply modify someone else's work, and try to sell their tablets for just as much are ripping people off.
post #8 of 62
Quote:
Originally Posted by MJ1970 View Post

I don't think anyone who does these is claiming Apple is actually making 50% on these devices. They are simply looking at the things they are able to analyze.

Chill.

The article title states that Apple is "netting" 51% profit. That means that they are claiming that that is what Apple is making.
post #9 of 62
Quote:
Originally Posted by rickwil61 View Post

The article title states that Apple is "netting" 51% profit. That means that they are claiming that that is what Apple is making.

So AI's headline is wrong and misleading. But the overall gist is that this is purely a hardware gross margin.

Additionally the original EET article is more a comparison of previous to new iPad hardware costs and assuming those are the bulk and most variable of the costs between the two, it seems like a reasonable thing to be looking at.

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post #10 of 62
It's plainly obvious that after accounting for software updates, R&D and shipping costs that Apple's margins on the new iPad are slim. After all, if they sell 50M of these this year, a conservative figure, they'd manage a meager $15 billion in gross profit. Just how much R&D shipping and assembly can $15 billion or more cover?

/s
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post #11 of 62
Quote:
Originally Posted by MJ1970 View Post

*sigh*

There's always this comment.



First, in figuring gross margins for a product things like R&D, advertising and software development are generally. not included.

The other costs you've mentioned are of course.

But, more than that. This tear down is only one perspective of a total analysis. I don't think anyone who does these is claiming Apple is actually making 50% on these devices. They are simply looking at the things they are able to analyze.

Chill.

Only partially true. It is possible to assign any direct costs to COGS (cost of goods sold) regardless of the category. The key is whether it's a direct cost or not. For example, if you offer a $50 rebate on the product (where the rebate is tied directly to the purchase of the product), it is possible to include that in COGS.

Even then, there's some gray area.

Direct costs - almost always included in COGS:
- Materials
- Assembly labor
- Inbound shipping
- Direct quality labor (i.e., QC employees)
- Labor for receiving and shipping goods
- Packaging materials
- Disposal of scrap (or recovery of value for scrap)
- Rejected product
- Rework costs

Direct costs that may or may not be included in COGS, depending on corporate accounting standards:
- Manufacturing overhead like utilities and other costs that change depending on the quantity shipped
- Quality overhead
- Some marketing costs (for example, rebates or other bonuses paid to distributors based on volume)
- Very specific development costs (not usually included in COGS but can be if the cost can be directly tied to quantity shipped. For example, if there were a cost for registration and customization of a product for each customer, that could be a direct cost)
- Licensing costs (very frequently included in COGS, but it depends on the license agreement)

Indirect costs - not included in COGS. In general, these are costs that you have to spend regardless of how many units are shipped:
- Product development
- General marketing and sales costs
- General manufacturing overhead costs (those costs that don't change regardless of volume shipped)
- Corporate overhead
- Legal costs
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post #12 of 62
Quote:
Originally Posted by MJ1970 View Post

I don't think anyone who does these is claiming Apple is actually making 50% on these devices.

The article says EXACTLY that. Chill.

Quote:
Originally Posted by paxman View Post

Fixed it for you

Thanks, yes.

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post #13 of 62
I love how they "estimate" coststo 5 significant figures.
post #14 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

Trolls yelping about Apple's margins should consider this. If Apple were to lower its margins and thereby the price of iOS devices then Apple would completely own both the smartphone and tablet markets. Android tablets in particular would be flushed down the toilet in a heartbeat. The fact that Apple can build such high quality products and maintain high margins reveals just how powerful their economy of scale is and how efficiently they run the business. So the trolls should watch what they complain about because it might come back and bite them in the arse. It also speaks volumes as to what Apple thinks of the market share metric. Market share is not more important to them than profit.
post #15 of 62
I think we can all agree that Apple makes higher margins on tablets than the other guys.

At the end of the day, thats all that really matters,.
post #16 of 62
Quote:
Originally Posted by NeilM View Post

I love how they "estimate" coststo 5 significant figures.

It's even funnier than that. The most expensive item is estimated to only one significant figure. Most of the items are rounded off or estimated to full dollars, or at most, half dollars. But 'other' is estimated to the penny - which suggests to me that they simply use some standard percentage of the total.
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post #17 of 62
Wikipedia -
Quote:
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delivered goods and/or services and any operating or other expenses.

Also....
Quote:
Gross profit equals sales revenue minus cost of goods sold (COGS), thus removing only the part of expenses that can be traced directly to the production or purchase of the goods. Gross profit still includes general (overhead) expenses like R&D, S&M, G&A, also interest expense, taxes and extraordinary items.

http://en.wikipedia.org/wiki/Profit_(accounting)
post #18 of 62
Quote:
Originally Posted by MJ1970 View Post

*sigh*

There's always this comment.



First, in figuring gross margins for a product things like R&D, advertising and software development are generally. not included.

The other costs you've mentioned are of course.

But, more than that. This tear down is only one perspective of a total analysis. I don't think anyone who does these is claiming Apple is actually making 50% on these devices. They are simply looking at the things they are able to analyze.

Chill.

I understand what you are trying to say, but you are being way too generous in your assessment of the intelligence of people in general to understand what they are reading. And in fact, the article, not just the headline, clearly claims that this is profit, not gross margin.

Quote:
Originally Posted by AppleInsider View Post

Apple's third-generation iPad will have a slightly lower profit margin of about 51 percent, based on a new estimate of hardware costs.

Quote:
Originally Posted by MJ1970 View Post

So AI's headline is wrong and misleading. But the overall gist is that this is purely a hardware gross margin.

Additionally the original EET article is more a comparison of previous to new iPad hardware costs and assuming those are the bulk and most variable of the costs between the two, it seems like a reasonable thing to be looking at.

Again, way too much credit given as to expectations that people understand what they are reading and/or take the time to click through any reference material and articles. And I'm not just talking about people reading and posting there. This is the exact type of thing that the mainstream media picks up and then reports as fact. CNN's web site has referenced AppleInsider's articles as sources of information. And the day after AI reported on the analysis that iPhone apps cost less than Android apps (which was some of the most crap analysis I've ever read) it was reported by our locale TV news station with no backgrouind or details. Just simply the wholey unsupported conclusion, "iPhone apps cost less than Android apps" and stating that should be a consideration when deciding between iPhone and Android.

So yes, AI should be roundly criticized for sloppy reporting like this.
post #19 of 62
You have to put the components together, market the product and ship it and support it. That costs more.
Citing unnamed sources with limited but direct knowledge of a rumoured device - Comedy Insider (Feb 2014)
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post #20 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

+100000000000000000

post #21 of 62
Quote:
Originally Posted by MJ1970 View Post

So AI's headline is wrong and misleading. But the overall gist is that this is purely a hardware gross margin.

And who reads headlines, anyway?
post #22 of 62
Prepare for another MASSIVE quarter.

China Telecom Begins Selling iPhone 4S After Receiving 200,000 Pre-Orders

http://www.cultofmac.com/151772/chin...00-pre-orders/

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post #23 of 62
Margins down 2%? Does this mean Apple is faltering under Cook and we should all sell our stock¡

Quote:
Originally Posted by AppleIsider

netting Apple 51% margins

Can you net a gross margin?

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post #24 of 62
Quote:
Originally Posted by SolipsismX View Post

Margins down 2%? Does this mean Apple is faltering under Cook and we should all sell our stock¡


Can you net a gross margin?

NO, I think you have to use a gig. They're way too big for most nets.
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post #25 of 62
All those pixels must require a lot of extra power. The battery in the iPad3 has almost 70% more capacity but the device keeps the same batter life as before.
post #26 of 62
Quote:
Originally Posted by Tallest Skil View Post

Yes, because R&D, shipping, advertising, assembly, packaging, software development, and three years of updates is 100% free.

Come on, guys. You're perpetrating the lies that the trolls use.

I agree, the term "net" is misleading. This is about gross.

That said, we know for a fact Apple makes a boatload of net profit. But who cares? The millions of customers obviously feel the price is worth it. Apple products are very often more than the sum of their parts. You can't put a dollar amount to intangibles like user experience.
post #27 of 62
Quote:
Originally Posted by msantti View Post

I think we can all agree that Apple makes higher margins on tablets than the other guys.

At the end of the day, thats all that really matters,.

No. To the contrary, it matters very little. What matters to the customer is how much he pays and the value that he receives for his payment. Very few customers who are queued-up at the Apple Store care on twit about gross margin. To the Apple shareholder, what matters his return on investment compared to every other potential investment. The shareholder may care more about gross margin than the customer, but not much more.
post #28 of 62
Quote:
Originally Posted by Mr. Me View Post

No. To the contrary, it matters very little. What matters to the customer is how much he pays and the value that he receives for his payment. Very few customers who are queued-up at the Apple Store care on twit about gross margin. To the Apple shareholder, what matters his return on investment compared to every other potential investment. The shareholder may care more about gross margin than the customer, but not much more.

Margins matter.

In 2011 HP did more revenue than Apple, yet Apple's market cap is 10X HP's. Why? Margins.
post #29 of 62
Quote:
Originally Posted by Mr. Me View Post

No. To the contrary, it matters very little. What matters to the customer is how much he pays and the value that he receives for his payment. Very few customers who are queued-up at the Apple Store care on twit about gross margin. To the Apple shareholder, what matters his return on investment compared to every other potential investment. The shareholder may care more about gross margin than the customer, but not much more.


Where did I say that it maters most to the customer?????
post #30 of 62
I think one should say US-LTE
post #31 of 62
I love that they can "estimate" cost for a retina-display multitouch screen, which no one has seen in production before.

Estimate is so much nicer than "made up."
post #32 of 62
I need a hobby project for the weekend. Gimme a $310 bag of iPad parts and instructions, and I’ll make and test my own!

I might need to borrow your aluminum-router, but I’ll give it back on Monday. Tuesday at the LATEST.

And can I have the software free? Thanks, bud! You just sold an iPad—without a dime of advertising needed!
post #33 of 62
I'm assuming this 50% doesn't include overhead like marketing r&d, salaries for the engineers and designers who designed this thing? What annoys me about these articles is the masses who see it and don't really think about it or just quickly glance at the headline will think Apple is making 50% on this device. It just perpetuates the myth that Apple products are overpriced.

Where do they get the cost estimates for these components anyway?
post #34 of 62
Quote:
Originally Posted by Rogifan View Post

I'm assuming this 50% doesn't include overhead like marketing r&d, salaries for the engineers and designers who designed this thing? What annoys me about these articles is the masses who see it and don't really think about it or just quickly glance at the headline will think Apple is making 50% on this device. It just perpetuates the myth that Apple products are overpriced.

Where do they get the cost estimates for these components anyway?

Check out quarterly reports of Apple and it's competitors, Apple makes much higher margins than anyone else (who also have their own R&D), so in essence, the 'value' in hardware isn't there.

Furthermore, most of the technology in Apple products is developed by ARM, LG, Samsung, Sharp and Toshiba, the software is the only truly proprietary element (the chipset, while 'designed' by Apple, is an aggregate of parts from ARM, Samsung, Qualcomm and PowerVR).
post #35 of 62
Quote:
Originally Posted by Mikeb85 View Post

Check out quarterly reports of Apple and it's competitors, Apple makes much higher margins than anyone else (who also have their own R&D), so in essence, the 'value' in hardware isn't there.

Furthermore, most of the technology in Apple products is developed by ARM, LG, Samsung, Sharp and Toshiba, the software is the only truly proprietary element (the chipset, while 'designed' by Apple, is an aggregate of parts from ARM, Samsung, Qualcomm and PowerVR).

Hardware is only one part of the equation.

Don't forget designing the form factor, testing which battery should be used, etc. Apple doesn't usually buy off the shelf parts.
post #36 of 62
For a moment forget about the fact that this article does not consider Assembly, Shipping, Warranty, Software Development and Support, retail margins, and so many other costs.

There is a much bigger problem in this article. Based on $310 of component costs, Apple's margins should be calculated as: ($499 - $310) / $499. That way, the margins come to about 38%.

Why? If Apple makes $10 Billion of Revenues, and has $3 Billion of Profits, what would you consider Apple's margins to be? It would be $3 / $10 or 30%.

In the same way, Apple's "Revenue" is $499, and Apple's profit is $189. So their margins should be calculated as 38%.

Of course when you consider all the other costs that have been ignored by this article, the Net margins would come in a lot lower than 38%.

I would not be surprised if Apple shows a drop in margins next time around - pretty much everyone was expecting to see the prices hiked with Retina Display, Better Camera, More RAM and LTE. Apple has done a phenomenal job by keeping prices constant. Competitors who already had a tough time matching the iPad 1 and 2 on price would find it even more difficult to match the new iPad on price!

A sure sign that Tim Cook is stamping his authority over Apple. Very likely Steve Jobs would have used this opportunity to get more money - whereas Tim is going for Sales and Marketshare. Considering Apple is likely to sell every single unit it can make, and probably face dramatic shortages, maybe they should have priced it higher!

But why let the facts come in the way of a good story!? Showing a headline with 51% margins is bound to get more clicks!
post #37 of 62
Quote:
Originally Posted by macarena View Post

For a moment forget about the fact that this article does not consider Assembly, Shipping, Warranty, Software Development and Support, retail margins, and so many other costs.

There is a much bigger problem in this article. Based on $310 of component costs, Apple's margins should be calculated as: ($499 - $310) / $499. That way, the margins come to about 38%.

Why? If Apple makes $10 Billion of Revenues, and has $3 Billion of Profits, what would you consider Apple's margins to be? It would be $3 / $10 or 30%.

In the same way, Apple's "Revenue" is $499, and Apple's profit is $189. So their margins should be calculated as 38%.

Of course when you consider all the other costs that have been ignored by this article, the Net margins would come in a lot lower than 38%.

I would not be surprised if Apple shows a drop in margins next time around - pretty much everyone was expecting to see the prices hiked with Retina Display, Better Camera, More RAM and LTE. Apple has done a phenomenal job by keeping prices constant. Competitors who already had a tough time matching the iPad 1 and 2 on price would find it even more difficult to match the new iPad on price!

A sure sign that Tim Cook is stamping his authority over Apple. Very likely Steve Jobs would have used this opportunity to get more money - whereas Tim is going for Sales and Marketshare. Considering Apple is likely to sell every single unit it can make, and probably face dramatic shortages, maybe they should have priced it higher!

But why let the facts come in the way of a good story!? Showing a headline with 51% margins is bound to get more clicks!

You're assuming that the majority of iPads sold will be the entry level model. It won't.

4G models are 629-829. A 4G chip costs about 5 dollars.
post #38 of 62
Guys, R&D and SG&A are separate line items under operating expenses in Apple's consolidated statements of operations.

These analyses within one company are valid in that they are performing the same methodology of BOM estimation to figure out COGS. Of course, you can't really compare the BOM estimate from one research firm to another (like iSuppli). However, with a side-by-side analysis from the same company, it's reasonable to say "the third generation product is slightly more expensive to make than the second-generation product."

As mentioned earlier, these companies are analyzing what's really reviewable from an outsider's perspective.

Apple doesn't break out unit sales by model, what the shareholders see are consolidated earnings. The companywide GM in Q1FY12 was 45%, so this 51% figure isn't completely out of line.

In any case, take these analyses with a grain of salt, their relevance is primarily to make relative comparisons between product generations. Other than that, I wouldn't use these guesstimates to make any judgments about how Apple runs their business.
post #39 of 62
Quote:
Originally Posted by Mikeb85 View Post

4G models are 629-829. A 4G chip costs about 5 dollars.

It sounds like you're saying the cellular option for the iPad only costs Apple $5. If so can you defend that. If not, can you clarify your meaning?

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post #40 of 62
Quote:
Originally Posted by macarena View Post

For a moment forget about the fact that this article does not consider Assembly, Shipping, Warranty, Software Development and Support, retail margins, and so many other costs.

There is a much bigger problem in this article. Based on $310 of component costs, Apple's margins should be calculated as: ($499 - $310) / $499. That way, the margins come to about 38%.

Why are you using the costs for the LTE model but the selling price for the WiFi model?

AI was showing one model as an example. Clearly, they left things out, but at least they were considering costs and revenues for the same model.

Clearly, the margins will vary from one model to the next. I would expect margins on the base model to be lower. I would expect margins on the LTE models to be much higher (the transceiver costs $21, but they get $129 extra revenue). In addition, the models with more storage would have much higher margins (32 GB of storage only costs $16 but gets $100 more revenue than the base model. Similarly, the 64 GB costs $32 more but gets $100 more than the intermediate model.

There is another big flaw in the numbers, though. I should have pointed it out in my earlier post. Apple does not get the full retail selling price for any of these systems if they're sold through third parties. I don't know what portion Best Buy or MacConnection or anyone else gets, but you can be sure they're not selling them for free. So Apple's revenues are substantially less than the numbers being thrown around (if I had to guess, I'd guess that the retailer gets 10-15%, but I don't know).
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