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Teardown reveals iPad mini yields 43% gross margin for Apple

post #1 of 72
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In a teardown of Apple's new iPad mini over the weekend, IHS iSuppli analysts found the base 16GB Wi-Fi only model to cost about $188 to build, meaning the device could yield a gross profit margin of 43 percent, depending on variable factors like shipping costs.

By factoring Apple's $188 bill of materials, or BOM, and manufacturing costs against the low-end 16GB Wi-Fi version's $329 price tag, it can be concluded that the unit is netting the company 43 percent margins on the high end.

iPad mini Teardown
Source: IHS iSuppli via AllThingsD


The teardown, as reported by AllThingsD, also found the 32GB and 64GB iterations to cost Apple an additional $15.50 and $46.50 in storage, respectively, bringing profit margins for those models up to 52 percent and 56 percent.

The flash memory found in the test unit was determined to be from South Korean chipmaker Hynix, while Japan's Elpida provided the system memory. These components were previously purchased from Samsung, however Apple appears to be diversifying its supply chain to include smaller manufacturers, a move most recently seen in the iPhone 5.

Besides the configurable memory options, the firm found the mini's 7.9-inch display and corresponding components to cost around $80, representing about 43 percent of the total BOM. It was previously reported that the panels being sourced from LG Display and AU Optronics are using GF2 technology, which raised per unit costs due to manufacturing challenges. IHS analyst Andrew Rassweiler said the price should come down as production of the thin screens normalizes.

Rassweller noted the usual lineup of chips seen in other iOS devices made their way into the mini, including Cirrus Logic audio silicon, STMicroelectronics accelerometer, and a Murata-assembled wireless communications package holding chips made by Broadcom.
post #2 of 72
Originally Posted by AppleInsider View Post
Teardown reveals iPad mini yields at least 42% gross margin for Apple

 

Nope.

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post #3 of 72
iSuppli only lists the cost of the bucket of parts. They don't understand the R&D, they don't know what the QC is like at those plants (how many get rejected). What's the failure rate on the aluminum enclosures, for instance (both the milling and the assembly)? What are Apple's costs related to marketing and distribution? I ordered mine with free shipping, how much does that cost?
post #4 of 72
Quote:
Originally Posted by Tallest Skil View Post

 

Nope.

Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142.  $142 is approximately 43.16% of $329.  That's a decent starting gross margin.

post #5 of 72

This is simply a raw parts cost, nothing else.

post #6 of 72

If the sales numbers are below expectations Monday this would give some wiggle room to lower the price. Holiday sale time soon.

post #7 of 72
Quote:
Originally Posted by SeaNorse View Post

If the sales numbers are below expectations Monday this would give some wiggle room to lower the price. Holiday sale time soon.
Or it will allow for some upgrades in the forseeable future without having to increase the price.
post #8 of 72
Quote:
Originally Posted by SeaNorse View Post

If the sales numbers are below expectations Monday this would give some wiggle room to lower the price. Holiday sale time soon.

I admire your optimism.lol.gif

 

Let me save you from some disappointment though. It's not gonna happen.

post #9 of 72
Quote:
Originally Posted by SeaNorse View Post

If the sales numbers are below expectations Monday this would give some wiggle room to lower the price. Holiday sale time soon.

$20 off for Apple's black friday sale!

post #10 of 72
Quote:
Originally Posted by bsenka View Post

iSuppli only lists the cost of the bucket of parts. They don't understand the R&D, they don't know what the QC is like at those plants (how many get rejected). What's the failure rate on the aluminum enclosures, for instance (both the milling and the assembly)? What are Apple's costs related to marketing and distribution?
I am sure they understand - it's just not what they do. They simply break the thing down and tell you how much the parts are costing Apple. Period.
post #11 of 72
Quote:
Originally Posted by Shameer Mulji View Post

Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142.  $142 is approximately 43.16% of $329.  That's a decent starting gross margin.

BOM now equals gross margin?

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post #12 of 72
Quote:
Originally Posted by paxman View Post


I am sure they understand - it's just not what they do. They simply break the thing down and tell you how much the parts are costing Apple. Period.

Maybe they understand, but it seems that a lot of other people don't.

post #13 of 72
Quote:
Originally Posted by SolipsismX View Post


BOM now equals gross margin?

(BOM / Selling price) x 100

post #14 of 72
Gross margin is the difference between revenue and cost before accounting for certain other expenditure like R&D. The costs to be subtracted include not just BOM but also stuff like assembly, shipping, dealer margins, etc. The 42%u2105 figure in the article makes very little sense.
post #15 of 72
Quote:
Originally Posted by Shameer Mulji View Post

(BOM / Selling price) x 100

Good luck with that.

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post #16 of 72
Quote:
Originally Posted by Shameer Mulji View Post

Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142.  $142 is approximately 43.16% of $329.  That's a decent starting gross margin.

 

Not what Tallest Skil meant by "Nope". Selling price of $329 is indeed a 43% profit margin on $188 - but that's the highest profit estimate, not the lowest, since it doesn't take into account R&D, shipping costs, etc. The article title should read "Teardown reveals iPad mini yields at most 43% gross margin for Apple", difference emphasized.

post #17 of 72
Quote:
Originally Posted by Shameer Mulji View Post

(BOM / Selling price) x 100

((selling price-BOM)/Selling price) * 100
post #18 of 72
Quote:
Originally Posted by Mike Barriault View Post

Not what Tallest Skil meant by "Nope". Selling price of $329 is indeed a 43% profit margin on $188 - but that's the highest profit estimate, not the lowest, since it doesn't take into account R&D, shipping costs, etc. The article title should read "Teardown reveals iPad mini yields at most 43% gross margin for Apple", difference emphasized.

gross margin is not supposed to tke into account R&D
post #19 of 72
Quote:
Originally Posted by arch View Post


gross margin is not supposed to tke into account R&D

 

My argument was not about gross margin vs profit, but least vs most.

post #20 of 72
Quote:
Originally Posted by Mike Barriault View Post

Not what Tallest Skil meant by "Nope". Selling price of $329 is indeed a 43% profit margin on $188 - but that's the highest profit estimate, not the lowest, since it doesn't take into account R&D, shipping costs, etc. The article title should read "Teardown reveals iPad mini yields at most 43% gross margin for Apple", difference emphasized.

profit margin and gross profit margin are two different things! AI also doesnt seem to get this right
post #21 of 72
Quote:
Originally Posted by Mike Barriault View Post

My argument was not about gross margin vs profit, but least vs most.

i agree with most. AI editor should read the wiki page on gross margin and net margin at least before attempting such an article.
post #22 of 72
Quote:
Originally Posted by SolipsismX View Post


BOM now equals gross margin?

Exactly.

 

Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.

 

That's stupidity and ignorance.

 

However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.

post #23 of 72
Quote:
Originally Posted by Shameer Mulji View Post

Close. If starting BOM is $188, then subtract that from $329 & you get a difference of $142.  $142 is approximately 43.16% of $329.  That's a decent starting gross margin.

 

That's not at all how it works. The raw cost of material goods is nowhere near the actual cost to Apple.

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post #24 of 72
Quote:
Originally Posted by arch View Post


profit margin and gross profit margin are two different things! AI also doesnt seem to get this right

 

What's worse, this nonsense will be propagated throughout the news organizations as if it were true.

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post #25 of 72
Quote:
Originally Posted by pedromartins View Post

Exactly.

 

Time and time again we have to deal with the same non-sense, the stupidity from some posters that do not understand the difference between BOM and actual cost per device and the fact that they truly DO NOT WANT to understand it. They are here just for bashing and laugh at the ones that buy this device or any other product made by Apple.

 

That's stupidity and ignorance.

 

However, even if the BOM was 2 dollars, so what? It's totally irrelevant. This is the best tablet out there besides the new 9.7" iPad (ecosystem, UI speed, tablet apps) and that's all that matters.

Heck it's just a guess anyway.

 

Besides, anyone who's been here for very long at all knows that Apple is more efficient at building devices and pays less for comparable components than the rest of the industry due to their huge volumes and negotiating skills. Because of that their component costs could even be less than iSuppli estimates.


Edited by Gatorguy - 11/4/12 at 3:37pm
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post #26 of 72
Quote:
Originally Posted by mitchell_pgh View Post

This is simply a raw parts cost, nothing else.

That's why they are calling it a 'gross' margin. Just like what you make before taxes is your 'gross' pay, etc.

The 'net' margin is likely much much lower, especially this year where they probably have higher R&D etc costs.

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post #27 of 72

The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini. 

 

It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.

post #28 of 72
Quote:
Originally Posted by SeaNorse View Post

If the sales numbers are below expectations Monday this would give some wiggle room to lower the price. Holiday sale time soon.

1. Apple lowering prices is not Apple's style

2. When it comes to analysts and the numbers they pulled out of their butts, Apple is a Honey
Badger

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post #29 of 72
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Originally Posted by charlituna View Post

That's why they are calling it a 'gross' margin. Just like what you make before taxes is your 'gross' pay, etc.
The 'net' margin is likely much much lower, especially this year where they probably have higher R&D etc costs.
Gross margin is more than just subtracting BOM. They are wrong in calling it ‘gross’.
post #30 of 72
Quote:
Originally Posted by drobforever View Post


It seems like even without long lines buying, the mini ran out of stock quickly.
That could be due to a number of things, including shorter but steady lines all day rather than folks showing up to wait overnight like the punchline in a Samsung ad. More folks buying online.

Or even Apple being cautious. They don't want to be saddled with tons of units that don't sell because they don't have huge warehouses etc to hold things. They likely figure more folks will want the LTE units so yes they might have under produced a little on this line, knowing they could ramp up quickly if the iPad Mini was selling. And they would have sales patterns to guide them in which models to ramp up the most. It is actually a smart move that might not be quite the disaster you think

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post #31 of 72
Quote:
Originally Posted by arch View Post

fuus
Gross margin is more than just subtracting BOM. They are wrong in calling it ‘gross’.

True, but that is their logic.

And in classic AI, really all blogs, form, the information is merely quoted without any editorials particularly pointing out the bad info like poor definitions, lack of the full picture etc

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post #32 of 72
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Originally Posted by Apple ][ View Post

Maybe they understand, but it seems that a lot of other people don't.

 

Most people dont seem to understand what gross margin is, let alone cost of goods, and the other associated costs.

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post #33 of 72

Many people do not understand gross margin. Accounting can be tricky. What is a direct vs indirect cost? Then there is the math.....

 

I would take Cook's word for it that the mini is well under the average gross margin for Apple. In other words, they priced it aggressively. We'll see in their next quarter's conference call how the mini fared and whether it brought down their average margins appreciably.

 

That said, the low BOM did surprise me, if it's at all accurate.

post #34 of 72

I realize that there is an argument going on about Price - BOM/ Price times 100 does not equal gross margins.  The simplicity of this relationship is one of it's benefits.  In Apple's business, it skips all the complexity created by the capital outlay for equipment, special prices for products supplied, and other contractual issues.  The fact that Apple purchases most of the expensive machinery necessary to make its products and writes it off on their own books, and guarantees a purchase price for the total output of a factory makes the decision to build for Apple a low risk high profit exercise for the manufacturer.  The flip side is no one outside of Apple can correctly calculate the BOM Apple pays for it's goods.  The simplest way around this is the formula above.  It will understate Apple's costs at the beginning of the development cycle and overstate their costs at the the end.  

 

An oversimplification can be justified if its use is understood and the limitations of the guess are laid out.  I have to defer to Asymco on this one.  Horace has consistently been correct when he has described the marginal expenses Apple has given in it's guidance as low.  I believe Apple is not being manipulative in doing this.  I believe they are simply giving an average of what their costs will be if demand is low versus high as an estimate of what they will face next quarter.  So far in the most recent quarter's in memory Apple has always been demand limited.  This has meant that the average done at the beginning of the quarter is unreasonably low since there was no product sold at the lower demand profile.  If there ever were a quarter when the demand was not in excess of the supply then Apple's conservative guidance would not only be warranted, but an honest guess as to what would happen over the next 3 months.

 

The added expenses that everyone has listed elsewhere in this discussion are all real expenses.  They will be swamped by the effect of high demand on expenses if the demand occurs as it has during the last 10 or 12 quarters.  The estimated BOM is a reasonable street price for a small order of screens (10,000 or so).  This price would be way high if the order locked up the whole output of one or more factories producing these products.  I would expect at least 10%-15% drop in the BOM if the contract kept the factory at full tilt production levels.  Maybe more if the high risk capital necessary to refit the factory was supplied by the buyer. This is how Apple buys all of their products.  It is the real strategic value of all that cash "sitting around doing nothing".  There is no bank in the world who wouldn't accept a check or draft written by Apple do its core business. None of their partners have ever lost money making their products for them either.  

 

It is also true that over the whole quarter Apple will drive down the costs for new tech by paying incentive bonuses for certain levels of production at each of it's suppliers factories.  This will be averaged into the monthly total to reduce costs.  If my memory is correct, the last "monster quarter" was from Jan- March 2012.  This corresponds to the second quarter after a refresh of product (iPhone 4s) in the market place when demand and efficiency were at an all time high.  If Apple beats that quarter's income and sales volume by a large percentage (more than 40%) you can look for Wall St to get back on board the Apple express.

post #35 of 72

Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.

It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.

post #36 of 72
Quote:
Originally Posted by drobforever View Post

The biggest problem right now is not the margin. It's actually the rumor 'low yield rate' of the iPad mini. 

 

It seems like even without long lines buying, the mini ran out of stock quickly. That means not a lot have been produced. If they continue to be out of stock for the next month, a lot of people will have lost their patience and just go and buy other tablets for holiday gifts.

They are posting 2 weeks back order which means they are delivering everyday. Just today they announced that you can order online and pickup in the store the very next day. If people wait until two weeks before Christmas to order then perhaps they will be taking the risk they won't get it in time. If you want one, best to order early. They are not out of stock. They run out everyday. Big difference.

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post #37 of 72

Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, A/S, etc ? 

post #38 of 72
Quote:
Jesus!!! What happens to appleinsider ? 43%???? Did you include R&D, advertisement, shipping & handling, marketing, employees, iOS cost, other bundle softwares, etc ?

Thank you.

 

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post #39 of 72
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Originally Posted by lightstriker View Post

Gross margin includes cost directly related to the sales of an item; labor, logistics, BOM.

It does not include rent, aministrative cost, R&D, etc. These are subtracted for net profit. Its hard to quantify these in to the item. So they are subtracted from gross profit at the end of the month/quarter/year.

 

Correct. But the bigger failing is that most of the prices are just guesses. Perhaps educated guesses, but guesses non the less.

 

I almost think these guys assume a margin and then fudge the figures to make it work.

 

Remember their 40%-50% margins on basic full size iPads. Court documents revealed lower end margins were about 23% IIRC.

 

That kind of discrepancy means they are really missing significant elements in their estimates.

post #40 of 72
Quote:
Originally Posted by arch View Post


((selling price-BOM)/Selling price) * 100

yes you're correct.  made a big mistake.

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