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iPod video tear-down suggests high Apple margins (images)

post #1 of 36
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A tear-down of Apple Computer's newly refreshed video iPod reveals potentially high margins for the company and confirms that both PortalPlayer and Broadcom have retained their respective sockets inside the device.

Craig Berger, an analyst at Wedbush Morgan Securities who covers PortalPlayer, had predicted that the iPod chip maker would retain its slot in the device and ripped one open just to be sure.

"We do see both the PortalPlayer MP3 processor and the Broadcom video processor chip inside this device, consistent with our prior expectations that this device would remain a discreet two-chip solution for the time being," he told clients in a research note on Thursday.

Berger said Apple made very few hardware changes over its fifth-generation iPod with video playback, but did update the player's power management chips "The lack of hardware changes implies that this device is a short-term, stop-gap device intended to buy Apple more time until it is ready to launch its true iPod Video later this year or early next year," he said.

Given the lack of hardware changes, the analyst believes Apple is still working on launching its 'true' video iPod late this year or early next year. "In the forthcoming 'true' video iPod, PortalPlayer and Broadcom could maintain their supplier status," he said, "or recent speculation that nVidia (or Samsung) will be the processor supplier could prove true."

Of interest to Apple investors, Berger's tear-down analysis implies that the company's gross margins could be between 45 and 50 percent on the refreshed iPod video devices given continuing hard disk drive price declines.

"Apple should see strong gross margins on these devices in the mid-40 percent range, per our [bill-of-material] cost estimates," he wrote in his note. "Apple is not scaling the capacity of the iPods that fast, and with the hard drives used in the iPods getting cheaper as time goes on, Apple can lower the price point on its 30GB iPod while still maintaining gross margins."



Berger estimates that Toshiba hard disk drives account for approximately 46 percent and 61 percent of Apple's materials cost for the 30GB ($60) and 80GB ($110) model, respectively. Other costly components standard amongst both models are said to include a $9.00 2.5-inch color LCD screen, a $6.00 Li-ion battery, $5.80 PortalPlayer SoC, $8.50 Broadcom video decoder, $3.00 Wolfson audio codec, $2.50 Click-Wheel and $9.00 aluminum case and connector kit.

The analyst estimates the total bill-of-materials cost for the $249 30GB model to be just $130.90, which would represent a 47.4 percent margin before freight, marketing and other costs. Similarly, he estimates materials for the $349 80GB model cost just $180.90, yielding margins of approximately 48.2 percent.

Click for larger image

In his tear-down, Berger also lists Infineon as a supplier of 256Mbit SDRAM ($1.20), Linear Technology proving a USB power manager and Li-ion charger ($1.50), National Semiconductor lending at high voltage step down switching regulator ($0.70) and Cypress contributing a Click-Wheel PSoC mixed signal controller ($0.90).

Philips and Silicon Storage Technology also continue to play small roles in the video iPod, according to the tear-down.
post #2 of 36
first comment!

130 to make the 30 GB.....I bet when you factor in overhead expenses (employee wages, marketing, R&D) then it brings it up close to 200....

Even still, apple is making some good profits off those ipods.
post #3 of 36
It's not too surprising, though I can imagine the shock and disdain from those that see this but don't understand the business. There are many expenses that are simply not covered in that type of analysis because that's not the focus.

I thought the tear-downs of previous generation units had about the same GPM, though I thought it was closer to 50%, but that's a few dollars difference at most.
post #4 of 36
"Third post!"

Anyway, the rumours of a possible 6ht generation iPod continue to be alive. Thruth be told, I keep putting off buying my 1st iPod because of this. I'm happy (in the mean time) with my first generation nano.
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post #5 of 36
Well... the hardware isn't any different. Now where's that 5.5G search function in the 5G?
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post #6 of 36
Quote:
Originally Posted by WhetWurm

Well... the hardware isn't any different. Now where's that 5.5G search function in the 5G?

doesnt have one, which realy annoyed me. those bastards.......
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post #7 of 36
It could be a "stopgap," OR, the "true video iPod" could be a high-end model in ADDITION to the music iPods.
post #8 of 36
Quote:
Originally Posted by nagromme

the "true video iPod" could be a high-end model in ADDITION to the music iPods.

It better be, because if you think you can get a widescreen LCD into a package the same size as the current HDD iPod and maintain battery life, you are dreaming. Apple shouldn't compromise on the HDD iPod's primary function of being the best possible portable music player.
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post #9 of 36
I think the true video ipod will be a new model atop the current one. There's still a market for a full size ipod for music.

They've been very careful to call it ipod with video.
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post #10 of 36
Quote:
Originally Posted by nufase

first comment!

130 to make the 30 GB.....I bet when you factor in overhead expenses (employee wages, marketing, R&D) then it brings it up close to 200....

Even still, apple is making some good profits off those ipods.

I beg to differ... with wage costs, remember were talking Chinese labot here. Not particularly pricey. I believe I saw per unit costs for some devices close to less than $3. As for marketing and R&D well, those are amortized over volume so the only real additional might be freight.

$200 IMHO is unlikely. Apple'd be selling them for $299 still if that was the case. The price drop is not "defensive", it is merely a deferral to the overall commodification of the components contained within the device.
post #11 of 36
Quote:
Originally Posted by ecking

I think the true video ipod will be a new model atop the current one. There's still a market for a full size ipod for music.

They've been very careful to call it ipod with video.

a separate video ipod would also make sense from a size standpoint - people wanting to watch movies would be willing to lug around a slightly larger ipod if it meant having a bigger screen.

Still, that would make for a very broad product line - shuffle, nano, ipod, vpod. it could be a good thing, though - some people would probably by a vpod as well as a shuffle or a nano - one for the gym and one for everything else.
post #12 of 36
I would call it iPod cinema
post #13 of 36
Quote:
Originally Posted by unother

I beg to differ... with wage costs, remember were talking Chinese labot here. Not particularly pricey. I believe I saw per unit costs for some devices close to less than $3. As for marketing and R&D well, those are amortized over volume so the only real additional might be freight.

$200 IMHO is unlikely. Apple'd be selling them for $299 still if that was the case. The price drop is not "defensive", it is merely a deferral to the overall commodification of the components contained within the device.

I disagree with that. Costs are more than just what you think to be the "labor" involved in the manufacturing line. Even if your number was correct, it would be just a small part of the overall expense.

You are forgetting about, packaging, shipping, handling, warranty costs, distribution which includes distributor expense and profit, retail expense and profit, advertising, etc.

If Apple makes more than 10-12% profit on these, I would be surprised.
post #14 of 36
Quote:
Originally Posted by mbaynham

doesnt have one, which realy annoyed me. those bastards.......

Totaly agree!

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post #15 of 36
Quote:
Originally Posted by melgross

I disagree with that. Costs are more than just what you think to be the "labor" involved in the manufacturing line. Even if your number was correct, it would be just a small part of the overall expense.

You are forgetting about, packaging, shipping, handling, warranty costs, distribution which includes distributor expense and profit, retail expense and profit, advertising, etc.

If Apple makes more than 10-12% profit on these, I would be surprised.

Probably more like 18-20% but defining "profit" is a bit arbitrary.

These speculations always make me think how much less sensible costs are distributed for basic needs like bread. Think of the raw material costs and the final price and how much goes to the farmer.
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post #16 of 36
There are a number of other costs. They employ Fedex/UPS supply chain services: shipping directly from China to retail/direct to customer is going to be costly even though they are likely to receive a significant discount. Then there are the costs related to R&D, production, marketing, transportation, logistics, support, sales commissions, and just-in-time manufacturing, and finally overhead. My guess is that when all the value-added services are considered, they're looking at $180 when all fixed costs are considered, and so a $70 contribution margin (profit) by this reasoning.
post #17 of 36
Quote:
Originally Posted by MacGregor

Probably more like 18-20% but defining "profit" is a bit arbitrary.

These speculations always make me think how much less sensible costs are distributed for basic needs like bread. Think of the raw material costs and the final price and how much goes to the farmer.

No. There are gross margins, and then there is profit.

The gross margins on iPods have averaged around 20%, but the actual profits, after all costs are accounted for, is closer to 10%.

It's not arbitrary at all. It's very well defined.

Talking about farmers is not the point. Talk about all of the other costs in the chain. How about the guy's that make the dough, or the bread?
post #18 of 36
um, little off subject but someone said that if the 'proper' video ipod did have wireless capabilities it would have to be done properly. just had a little think about this, i remembered about the ichat theater in leopard, and playing of photo slide shows through it. now that on an ipod would be cool. well, at least for a little while.
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post #19 of 36
One problem is the licensing from the media suppliers. THEY have to allow this.

I'm sure that MS would have wanted to allow unlimited sharing, but couldn't.

The same reason why we have DRM in the first place.

In fact, this is why MS had to limit ALL music sharing to a three play, or three day limit, whichever came first. This applies even if you have your own band's music in the player. It can't distinguish between legitimately downloaded non DRM'd MP3's (or other formats), ripped CD's, and home recorded stuff. so it limits ALL of it.

There is no reason to believe, at this time, that Apple could do better.
post #20 of 36
Quote:
Originally Posted by melgross

No. There are gross margins, and then there is profit.

The gross margins on iPods have averaged around 20%, but the actual profits, after all costs are accounted for, is closer to 10%.

It's not arbitrary at all. It's very well defined.

Talking about farmers is not the point. Talk about all of the other costs in the chain. How about the guy's that make the dough, or the bread?

You are correct, my use of "arbitrary" is in reference to what people think of the term "profit" not what I know the actual definition of "profit" is. But thanks for the correction.

And I know the cost of wheat, growing wheat, baking bread and selling bread. It is 80% wages, 10% overhead at each facility, 8% fuel costs and 2% ingredients costs. Profits are also taken on top of this and this is where there is a lot of variability.
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post #21 of 36
Quote:
Originally Posted by MacGregor

You are correct, my use of "arbitrary" is in reference to what people think of the term "profit" not what I know the actual definition of "profit" is. But thanks for the correction.

And I know the cost of wheat, growing wheat, baking bread and selling bread. It is 80% wages, 10% overhead at each facility, 8% fuel costs and 2% ingredients costs. Profits are also taken on top of this and this is where there is a lot of variability.

According to Marx, it's 100% labor. It's the only thing that I can agree with him about.
post #22 of 36
It's nice that the Zune will not be competativly priced.
post #23 of 36
Quote:
Originally Posted by melgross

One problem is the licensing from the media suppliers. THEY have to allow this.

I'm sure that MS would have wanted to allow unlimited sharing, but couldn't.

I'm surprised that they allowed this at all.
post #24 of 36
Quote:
Originally Posted by AmasianCrasian

There are a number of other costs. They employ Fedex/UPS supply chain services: shipping directly from China to retail/direct to customer is going to be costly even though they are likely to receive a significant discount. Then there are the costs related to R&D, production, marketing, transportation, logistics, support, sales commissions, and just-in-time manufacturing, and finally overhead. My guess is that when all the value-added services are considered, they're looking at $180 when all fixed costs are considered, and so a $70 contribution margin (profit) by this reasoning.

You have a solid understanding of the process. Are you in direct import?

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post #25 of 36
Quote:
Originally Posted by SpamSandwich

You have a solid understanding of the process. Are you in direct import?

He's saying what several of us have been saying. Over and over again. Every time Apple comes out with a new product, and the "parts pricers" come out, and talk about absurd profits.

Actually his pricing is low.
post #26 of 36
Quote:
Originally Posted by melgross

According to Marx, it's 100% labor. It's the only thing that I can agree with him about.

Off topic tangent, but that was a major problem with Marx, he undervalued the ecological capital that is necessary to support business and labor (the economic capital and social capital respectively). Labor may be more important than the cost of coal, BUT labor practices are not more important than a sustainable energy supply that doesn't degrade the environment where the workers live. Thus Chernoble and the reasoning that made enviro problems in the USSR so much worse than in the West. We give overwhelming favor to financial capital, he gave overwhelming favor to social capital and both sort of liquidate ecological capital as necessary. All three are important and no industrial economic system has gotten it right yet, though Europe is trying, many developing countries are experimenting, and even the US is slowly appreciating the comcepts behind the "Triple Bottom Line" and "ecoliteracy."
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post #27 of 36
Quote:
Originally Posted by JeffDM

I'm surprised that they allowed this [music "sharing"] at all.

Does anyone know yet what the percentage is of music given this privelage? Anything less than 70% would be annoying.

I wonder if we'll find out much about the entire pricing structure. Does the subscription pricing pay for the "shared" music functionality? Can the subscription model really give the media giants that much money that they can afford to open up other ways of downloading? The fact that so many companies tried subscriptions must mean that there are some advantages.

And how will this translate to a TV or movie format? Will Zunesters be able to beam each other episodes of "Lost" or the trailer to "Spiderman?" Obviously no one is going to be allowed to send someone the Lord of the Rings across the classroom or commuter bus, so does that mean that MS will need to create a different device with different modes of use?
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post #28 of 36
Quote:
Originally Posted by MacGregor

Does anyone know yet what the percentage is of music given this privelage? Anything less than 70% would be annoying.

I would have thought that it'll only work with tracks that have been downloaded with Zune's download service.

It's possible that it may work with any WMA track (source player adds DRM before transmitting to other player), but almost certainly won't work with mp3s.
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post #29 of 36
Quote:
Originally Posted by MacGregor

Will Zunesters be able to beam each other episodes of "Lost" or the trailer to "Spiderman?"

I doubt it - the battery would probably run out before the transfer is complete
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post #30 of 36
Quote:
Originally Posted by MacGregor

And how will this translate to a TV or movie format? Will Zunesters be able to beam each other episodes of "Lost" or the trailer to "Spiderman?"

Trailers sound like an obvious thing to allow unlimited beaming, as they're advertisements / enticements.

TV shows or movies however seem like something you wouldn't even allow beaming, as the media they are is very conducive to 'enjoy once', unlike music which is 'enjoy many many times'. If you let the person enjoy a movie or show once, then they're sated, and won't get it (immediately, they may wait for it to hit the bargain bins, which is not desirable).

Music is ideal for the limitations that Zune has - 3 plays or 3 days, that's long enough for it to grow on you, but not enough to bore you.

How about if Apple allowed lower bitrate copies of music - 32kbps mono with no limitations for example. The player could transcode at copy time. This has advantages - smaller files mean less battery life used, and quicker transfers*. All media could be copied, instead of just iTMS purchased media. The enticement to purchase is to get a full stereo high bitrate version, rather than a sub-AM quality version.

* or they could use Bluetooth which is far simpler for these uses. 2mbps Bluetooth 2/EDR could transfer an album (32kbps) in under a minute, or a song in 4 seconds.
post #31 of 36
i thought it was 3plays over three days, not 3 plays for 3 days
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post #32 of 36
Quote:
Originally Posted by MacGregor

Off topic tangent, but that was a major problem with Marx, he undervalued the ecological capital that is necessary to support business and labor (the economic capital and social capital respectively). Labor may be more important than the cost of coal, BUT labor practices are not more important than a sustainable energy supply that doesn't degrade the environment where the workers live. Thus Chernoble and the reasoning that made enviro problems in the USSR so much worse than in the West. We give overwhelming favor to financial capital, he gave overwhelming favor to social capital and both sort of liquidate ecological capital as necessary. All three are important and no industrial economic system has gotten it right yet, though Europe is trying, many developing countries are experimenting, and even the US is slowly appreciating the comcepts behind the "Triple Bottom Line" and "ecoliteracy."

The value of most everything is determined by the difficulty of obtaining it. The more difficult that is, the greater the value.

Basic resources are no different. When it was cheap to mine coal, and drill for oil, the prices were low. Coal's prices are still fairly low.

But, even if 90% of the world's oil is yet to be found, it will be expensive, as the easy to drill oil has already been exploited.

Simply, what this means, is that the machinery that needs to be designed and built requires even more labor to do so. More engineers and scientists to understand and fiqure out how to find, and extract it. More engineers to design the much larger, much more spohisticated equipment. More companies involved in building it, etc.

Again, it all comes down to labor.

The only time this breaks down is when certain luxury goods are involved. Are gold, platinum, and jewels as valuble as their prices suggest? Certainly not as a commodity, despite their rarity. But, to a certain expent, even they depend on more labor than would be involved to extract other natural minerals, because of their rarity. A good deal of the gold mined today is coming from mines that were closed decades ago because the price to extract it had risen above the then low price gold was selling for.

Part of the point is that if these commodities were as easy tio extract as are earthworms, despite their rarity, the prices would be much lower. And, yes, I do know that DeBeers holds diamonds back from the market.

And, in any case, as I pointed out, these are not normal commodities.
post #33 of 36
Quote:
Originally Posted by mbaynham

i thought it was 3plays over three days, not 3 plays for 3 days

3 plays, or three days, whichever comes first. If you play it 3 times in the first hour, that's it.

But, if you don't play it at all, and the 3 days are up, that's it as well.
post #34 of 36
An analyst here at Vocabulabs tore down the Craig Berger tear down article and found that the words used to build it could be had for free. Craig Berger himself was torn down and found to consist of several compounds available in any chemists lab, for a nominal cost. We tore down our cute, cuddly kitty cat, and found only guts. But we never found why we loved it so much.

Sometimes the parts do not add up to the whole.
post #35 of 36
So I guess now we can put an end to blaming the missing search function on hardware differences?



Quote:
Originally Posted by melgross

In fact, this is why MS had to limit ALL music sharing to a three play, or three day limit, whichever came first.

Not to mention that MS is also saying that not all songs can be shared. They have yet to clarify that, it may mean that media has to be tagged for sharing, or that it it can be shared unless it's tagged for not sharing.

I doubt movies or TV will allow sharing at all, except for trailers.
post #36 of 36
Quote:
Originally Posted by purpleshorts View Post

Sometimes the parts do not add up to the whole.

These articles are meaningless.

Buy Maya - and do a "tear-down". All that's in the box is a couple of DVDs and a book for f's sake! A total manufacturing cost of about $10 and yet they sell this for THOUSANDS!!!

What a rip-off! those guys must be raking it in! Etc. Etc.

C.
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