Originally Posted by jragosta
Think it through. When Google makes an Android device, they have to pay Microsoft a license fee - so that is a cost that must be included.
When Apple makes an iOS product, they use their own OS - which is included in the R&D numbers.
The R&D for an iPad mini are largely the same as for the iPad maxi. And R&D costs dont increase per device sold - not for Apple - , those costs are sunk.
RAs for support, there are warranty costs even if the customer gets AppleCare. The first 90 days is covered by warranty.
There are costs, but that is true about the iPod touch, our comparison model.
So you're simply guessing about Apple's costs. You could have saved a lot of typing by just stating that up front.
I didn't guess the retail price of the iPod touch which you got spectacularly wrong. Which largely invalidates the rest of your arguments.
And way to ignore the rest of my post. Firstly you ignored the big gaping mistake you made on the retail cost of the iPod touch. You were out by $30. You are also ignoring my main point - that the margins are for the line not the cheapest models and Apple deliberately keeps it's lower models - on the touch - with inadequate memory to entice consumers to gravitate to the next model. However they still have a cheap model in the game.
You are ignoring all this because the $199 iPod touch - which has a retina display and a A4 chip - disproves your theory. As for asking me for proper stats iSuppli's recent reports on the iPod touch are behind a firewall. Which means you know as much as me on that one, but less than most people on the actual retail cost of the iPod touch. Which largely should exclude you from any discussion on margins.
Not true. iSuppli most certainly does not use retail prices. In fact, for many of these components, there ARE no retail prices - they are only available at wholesale from the manufacturer. iSuppli's estimates are based on what they think the manufacturer pays. They may not be as accurate for Apple as for other companies, but it is their estimate. Regardless, that point simply makes it even less useful to look at iSuppli numbers.
Ok it uses wholesale prices for other companies. We would have to assume that Apple is cheaper, particularly if it uses old components used in the old iPad 2 etc.
You're still arguing contradictory points. On one hand, you're arguing that at least the base iPod Touch at $199 is sold at break even or very low margin. Then you argue that a 7-8" iPad Mini could be sold at $199 with some profit. Please explain how Apple could do that. If the iPod Touch is break even at $199 or very low margin, how do they sell a device with 4 times the screen size, much larger case, much larger battery, and much faster CPU for the same price and make a profit?
The screen size will be cheaper
as it is not
a retina display. The battery size will not be huge as it needs to power as small a number of pixels as the iPhone retina displays. The graphics card - the same. Only the CPU needs to be in any way "expensive" to compete with the Nexus - but they may not care on the specs of the CPU and just depend on the iPad selling on brand. It wont be the iPad 3 chip, possibly the iPad 2. This will allow for some Android fan boy crowing but what of it.
Very few manufacturing companies can survive on less than 20% margin. The general rule of thumb is that if a manufacturing margin is less than 30%, you have to think very hard about it or have a high volume/low overhead strategy to justify it.
That would be overall margin across the entire line, rather than on one product. Apple can use higher margins on iPhones and top end iPads, and in the over all line of iPad minis to subsidise one measly model.
But rather than generalizations, let's look at specifics. AMZN is not a manufacturing company in any real sense and manufactured products are only a small fraction of their revenues, so looking at their overall picture is going to underestimate their overheads (manufacturing adds overheads that don't have a major part in their current product lines - even if you outsource - things like quality, scrap, R&D etc). But in their most recent quarter, AMZN's overheads were 23% of revenues. So even if a new manufactured didn't have any costs for R&D, scrap, quality, support, etc, they'd need a gross margin of at least 23% just to break even. And since manufacturing DOES have added costs that don't appear in a pure distribution model (as represented by the 23% figure), they'd actually need greater than 23% gross margin just to break even on the product sale.
Again would be overall margin across the entire line, rather than on one product. Amazons total gross margins are 2%, if they can afford a loss leading hardware device to sell content, Apple can afford a loss leading model of one device which can be offset by prices elsewhere.
Your fallacy is that one low end model model which sells below cost, at cost, or low margins will destroy margins elsewhere. It wont
We do need to get recent figures on the iPod touch - selling for $199 not $229 - and on whether it is in profit using all your extra criteria on R&D etc. What we do know is the margins on the 8G model are much less than the margins on the 64G model, which is the exact same device with a few extra memory sticks probably costing Apple an extra 10-30$ max - the tear down in the article here says that google is paying $8 more for a 16G, or 2 8G sticks, than an 8G stick. The top end iPod touch sells for $200 more, and that is where the margins on the iPod touch line are made. Simply if the iPod touch is at cost at retail, the 64G is at 50% margins, and the mid range at 30%. If the iPod touch has 10% margins, the other margins increase sequentially. Thus Apple makes enough margins on the iPod touch line even if the cheap model is not getting the 25-40% margins of the overall line. And the cheap model comes with inadequate memory - 8G not 16 G - to encourage the purchasing higher models, after the customer has entered the store, or gone online. The jump to the middle level model is 28G memory.
Apple, if it follows this model, will look at the iPad mini line and say - across the whole line how can we make 30% - and put in the massive price differentials on memory alone to make the margins, while going cheap on a lower end model with underpar memory.
No price umbrella, as Tim Cook himself says.