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Apple's new iPod nano sports fattest profit margins yet

post #1 of 28
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Apple's new iPod Nano introduced last week is virtually a completely new design of the player, using a fresh array of components and sporting the fattest profit margins of any other iPod of recent past, according to a new tear-down analysis.

Market intelligence firm iSuppli recently dissected the new Nano and determined the product carries a Bill of Materials (BOM) cost of $58.85 for the 4Gbyte version and $82.85 for the 8Gbyte version, compared to their retail price of $149 and $199, respectively.

As has been the case with all of iSuppli's recent tear-downs, the estimated BOMs are strictly limited to costs for components and other materials used to construct the product, but do not include costs for manufacturing, software, intellectual property, accessories and packaging. The firm's BOM figures also do not include research and development costs, since such data cannot be derived from a tear-down and component analysis.

In achieving the Nano's more cost-effective design, Apple has reportedly turned to a fresh array of component suppliers that include Micron Technology Inc., Dialog Semiconductor GmbH and Intersil Corp. Synaptics Inc., once a fixture in click-wheel-based iPods, has also returns to the platform after an absence.

"The changes in components have resulted in significant cost reductions in the Nano design, allowing Apple to offer a product that is less expensive to build and that has enhanced features compared to its predecessor," said Andrew Rassweiler, senior analyst and teardown services manager for iSuppli.

Fat margins are nothing new for Apple, whose products traditionally have been sold at retail pricing that is about twice the level of their hardware BOM costs, based on earlier tear-downs of the iPhone, the iPod Shuffle and previous members of the iPod Nano line (2005 Nano, 2006 Nano). However, Rassweiler notes that with the new Nanos, "Apple has exceeded even its usual lofty standards."

The arrival of new Nano semiconductor suppliers, Micron, Dialog and Intersil -- and the return of Synaptics -- has been accompanied by the departure of previous part providers, NXP Semiconductors and Cypress Semiconductor Corp. Such wholesale supplier swaps are also not unusual for Apple, which frequently switches its component partners.

"With Apple, it seems, no supplier is safe, and no slot is a given," Rassweiler added.

Third-gen iPod Nano tear-down photo compliments of iFixIt

Of all the Nano's new component suppliers, Micron stands out as the most notable addition because it's the first time that iSuppli's Teardown Analysis Service has identified a Micron part in an iPod. In the Nano torn down by the firm, Micron was the maker of the high-density NAND flash memory that serves as media storage, worth $24 in the 4Gbyte version of the product and $48 in the 8Gbyte version.

"This gave Micron the largest single portion of value in the Nano of any supplier at 40.8 percent for the 4Gbyte version and 57.9 percent for the 8Gbyte," the firm said.

Third-gen iPod nano tear-down photo compliments of iFixIt

Apple's primary suppliers of NAND flash historically have been Korea's Samsung Electronics Co. Ltd. (which has been the dominant seller), Japan's Toshiba Corp. and Korea's Hynix Semiconductor Inc.

Micron is last in share position as a supplier to Apple for NAND flash, and only began shipping small quantities during the last year. While the new Nano slot is a major win for the U.S. semiconductor supplier, iSuppli believes Samsung remains the world's largest maker of NAND-type flash and is likely to continue to be used as a supplier by Apple.

iSuppli Table: Direct Materials Cost Estimate of the new iPod Nanos

Another one of the biggest and most important slots on the new Nano is the combined core video processor/microprocessor chip in the system, according to the firm. Costing $8.60, the Samsung-supplied core IC processor accounts for 14.6 percent of the 4Gbyte version's BOM, and 10.4 percent of the 8Gbyte's BOM.

This is the second time around for Samsung's core processing IC in the Nano line; in the version of the Nano released in late 2006, Samsung supplied the core processing IC as well. Samsung also contributes 32Mbytes of Mobile SDRAM, worth $2.72, or 4.6 percent of the 4Gbyte BOM and 3.3 percent of the 8Gbyte BOM.

iSuppli tentatively forecasts that total iPod Nano shipments will reach about 23 million units in 2007 and 27.9 million during 2008.
post #2 of 28
Sorry, but ur 'rithmatic is wrong:


Nano (1st Gen) (2GB)
BOM Cost: $89.97
Price: $199
Margin: 54.8%


Nano (2nd Gen) (4GB)
BOM Cost: $72.24
Price: $199
Margin: 63.7%


Nano (3rd Gen) (4GB)
BOM Cost: $58.85
Price: $149
Margin: 60.5%


Nano (3rd Gen) (8GB)
BOM Cost: $82.85
Price: $199
Margin: 58.4%


So the new Nanos have a slightly worse margin than last years nanos.
(although they're still good, and still better than the 2005 Nano 1st Gen)
post #3 of 28
When I see these tear-down cost analyses, I just have to ask myself,
"Does Apple really pay those prices? Who can know?"

iSuppli can research the cost of the microprocessor, and find that it's $8.60, but
who's to say Apple hasn't negotiated some high-volume deal, so maybe they
get them for $8.04? Or $7.56? Or who knows?

Therefore, I think whatever profit margin we can glean from such numbers,
(after totally guessing at labor costs, packaging costs, etc.) is going to be
substantially off.

Only Steve knows.
Journalism is publishing what someone doesn't want us to know; the rest is propaganda.
-Horacio Verbitsky (el perro), journalist (b. 1942)
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Journalism is publishing what someone doesn't want us to know; the rest is propaganda.
-Horacio Verbitsky (el perro), journalist (b. 1942)
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post #4 of 28
I think the nanos are a great deal for the price, regardless of what they cost EXCEPT for the storage capacity. Other companies have similar players with double the memory at the same price points.

It's great that apple added features and upped the capacity with this update, but it's been so long since the last update, they're lagging in capacity from day one this time around.

And don't get me started on the shuffle, they must be making a ton of profit on that now. A year later and no price drop or capacity boost? Another great unit, but apple is coasting on their market dominance instead of staying competitive.
post #5 of 28
I agree with Lafe that they're probably getting a better deal. That said, you can't calculate profit based on parts costs alone. What about Marketing? Packaging doesnt cost apple anything meaningful. Intelectual property and software are sure to be a major contributing cost. What about accessories as stated above?
post #6 of 28
I've often wondered why people who post these figures DON'T factor in such things as:

- R&D (Apple spends enormous amount of money developing these things)

- Cost of manufacturing

- Cost of shipping some components to Taiwan

- Cost of shipping the finished products to the US and elsewhere.

- etc. (and there are many of them)


They create the impression Apple is reaping so much profits, which is not true.
post #7 of 28
Quote:
Originally Posted by minderbinder View Post

And don't get me started on the shuffle, they must be making a ton of profit on that now. A year later and no price drop or capacity boost? Another great unit, but apple is coasting on their market dominance instead of staying competitive.

Capacity increase in the shuffle is pointless. I expect that Apple will substantially lower the price around mid-late November.
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post #8 of 28
TO THE ADMINS AND MODS: thanks for the legends of figures and tables. Your listen to your readers. You rock!

On the other hand, I wonder if the costs shown are for the purchase of a single component, as you and me may buy, or for the ones when Apple buys 100 million or so of a particular component. If they are for the cost of single components in the market, then the real calculations will be much more in favor of Apple. Maybe twice better for Apple even!!!
post #9 of 28
"...do not include costs for":

manufacturing
software
intellectual property
accessories
packaging
research and development

NOR for:

advertising/marketing
customer service/support
insurance costs
legal costs
shipping
warehousing
regulatory approvals

etc.
post #10 of 28
So basically this article does nothing for us except to confuse and piss off. No offense AI still love you.
post #11 of 28
nagromme and kwameaj are right. Component cost is only part of the equation, the cost of royalties, assembly etc can cost much more than components.
post #12 of 28
Quote:
Originally Posted by Lafe View Post

When I see these tear-down cost analyses, I just have to ask myself,
"Does Apple really pay those prices? Who can know?"

iSuppli can research the cost of the microprocessor, and find that it's $8.60, but
who's to say Apple hasn't negotiated some high-volume deal, so maybe they
get them for $8.04? Or $7.56? Or who knows?

Therefore, I think whatever profit margin we can glean from such numbers,
(after totally guessing at labor costs, packaging costs, etc.) is going to be
substantially off.

Only Steve knows.

I think ereryone expects a "margin of error". Maybe a percentage should be stated.
Cubist
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post #13 of 28
Quote:
Originally Posted by suhail View Post

nagromme and kwameaj are right. Component cost is only part of the equation, the cost of royalties, assembly etc can cost much more than components.

Yeah, but gimme a break. Do people need a 10 paragraph explanation of what a teardown analysis does not include with every report? I thought this paragraph:
Quote:
As has been the case with all of iSuppli's recent tear-downs, the estimated BOMs are strictly limited to costs for components and other materials used to construct the product, but do not include costs for manufacturing, software, intellectual property, accessories and packaging. The firm's BOM figures also do not include research and development costs, since such data cannot be derived from a tear-down and component analysis.

would suffice and we would be spared the repetitive:

"Thats such a high margin. Apple is robing me"
"No it does not include the cost of toilet paper at the manufacturing plant"
...
Progress is a comfortable disease
--e.e.c.
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--e.e.c.
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post #14 of 28
Is this a good thing or a bad thing. Good for investors and bad for purchasers? All this profit margin makes Apple look like a greedy corporation and merely cheating buyers by not giving them more for their money. Assembly already takes place in China, where wages are dirt cheap. Does Apple use the best components in their products? I read that the audio processor chips aren't all the good. I can't tell since my ears aren't all that good. Apple has a lot of cash, so they must be making some profits. They manufacture devices like crazy, so they must get a break on components cost.
Why are people always delving into component costs on Apple products anyway? Is this done on all electronic products? Is there some sort of faction trying to bring down Apple. Sony products have always been expensive, yet I don't see anyone breaking down component costs on Sony products. As many Sony TVs that get sold, they must be raking in huge profits. Some weird stuff going on.
post #15 of 28
Obviously, Apple needs to make a profit on each iPod - so high margins aren't a bad thing
- they're actually a good thing!
- and as everyone has pointed out the BOM cost is only part of the cost

- but it is interesting to see how the margin changes (or doesn't) over time

- the fact that the margin has stayed nearly the same over 3 generations shows that, contrary to popular belief, Apple is not fleecing it's customers (any more than it has done over the last couple of years).

- i.e. it's deliverying the same value for money as it has in the past, and isn't resting on it's laurels.
- and isn't using it's dominant market position to exploit it's customers

- but is undoubtedly using it's massive buying power to get the best prices from it's suppliers.

- and also, is actually passing these benefits onto it's customers (to the same degree it always has).

- the fact that other companies appear to offer more-for-less hasn't changed from the position a few years back
- although few of Apples competitors in this market actually make a profit (I wonder why?)

It's surprising to me that people aren't raving about the new Nano more than they are
- for the same price as the 1st Gen 2GB Nano, you get 4x the Memory, a bigger screen, with more pixels, video play-back, and new GUI
- that seems to be ahead of the curve with regards to Moore's Law!
post #16 of 28
Quote:
Originally Posted by Lafe View Post

When I see these tear-down cost analyses, I just have to ask myself,
"Does Apple really pay those prices? Who can know?"

iSuppli can research the cost of the microprocessor, and find that it's $8.60, but
who's to say Apple hasn't negotiated some high-volume deal, so maybe they
get them for $8.04? Or $7.56? Or who knows?

Therefore, I think whatever profit margin we can glean from such numbers,
(after totally guessing at labor costs, packaging costs, etc.) is going to be
substantially off.

Only Steve knows.

And the accountants...
post #17 of 28
Quote:
Originally Posted by Constable Odo View Post

Is this a good thing or a bad thing. Good for investors and bad for purchasers?

Huh?!

Does anyone have a gun to anyone's head requiring them to purchase an Apple product? It is, therefore, neither. Purchasers are getting at least what are paying for.

OTOH, as a shareholder.....
post #18 of 28
Revenues
minus Cost of Goods Gold (i.e., direct costs)
= $ Gross Margin
minus Selling, General, & Admin, incl. R&D (i.e., indirect costs)
= Operating Income (also sometimes called "EBIT")
= Pre-tax Income (assuming no debt and no non-operating income, for simplcity)
minus Taxes Paid
= Net Income

$ Gross Margin/Revenues = % Gross Margin
EBIT/Revenues = % Operating Margin
Net Income/Revenues = % Net Margin

As other posters have pointed out, many of the less-than-financially-literate writers (and there are a LOT of them in the press, and yet they write these stories as though they know the stuff) constantly confound/confuse "gross margin" and "net margin" -- i.e., they use a story such as this one to imply the latter when it is really the former.
post #19 of 28
Quote:
Originally Posted by minderbinder View Post

I think the nanos are a great deal for the price, regardless of what they cost EXCEPT for the storage capacity. Other companies have similar players with double the memory at the same price points.

It's great that apple added features and upped the capacity with this update, but it's been so long since the last update, they're lagging in capacity from day one this time around.

Keep in mind that for the last three years, the competitors have almost always had a product of similar or more functionality and capacity for $50 less, so it's not necessarily double the space for the same price, although you can think of it that way.

Still, even though I don't always like Apple as a company, I still think their products are worth the extra $50. None of the other competitors compare well in terms of packing functionality per unit space (height, width, thickness: volume), the others tend to excel at packing functionality per dollar instead, and Apple's UI is usually a little less contrived. If you don't mind a larger device, then the competitors may have something for you.
post #20 of 28
Quote:
Originally Posted by JeffDM View Post

Keep in mind that for the last three years, the competitors have almost always had a product of similar or more functionality and capacity for $50 less, so it's not necessarily double the space for the same price.

Still, even though I don't always like Apple as a company, I still think their products are worth the extra $50. None of the other competitors compare well in terms of packing functionality per unit space (height, width, thickness: volume), they all excel at packing functionality per dollar instead.

Don't forget Apple's associated services via iTunes Store, icon factor and much higher resell value.
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post #21 of 28
Quote:
Originally Posted by solipsism View Post

Don't forget Apple's associated services via iTunes Store, icon factor and much higher resell value.

True, but I wouldn't count on much for a resell value on iPods, even if it's a little higher than competitors.
post #22 of 28
Quote:
Originally Posted by solipsism View Post

Capacity increase in the shuffle is pointless. I expect that Apple will substantially lower the price around mid-late November.

I wouldn't exactly say pointless, but I see what you mean.

I agree that a price drop would probably be more appealing to most people, but if apple wanted to avoid a price drop bumping the size would be better than nothing. It's just not a great bang for buck now.

Quote:
Originally Posted by JeffDM View Post

Keep in mind that for the last three years, the competitors have almost always had a product of similar or more functionality and capacity for $50 less, so it's not necessarily double the space for the same price, although you can think of it that way.

While that's generally true, I think the gap for the shuffle is bigger than ever. And while everything else has had price drops or feature/capacity bumps in the same timeframe, the shuffle hasn't kept up.
post #23 of 28
Quote:
Originally Posted by Constable Odo View Post

Sony products have always been expensive, yet I don't see anyone breaking down component costs on Sony products.

Maybe because they are busy looking for the latest rootkits in Sony CDs?
post #24 of 28
Quote:
Originally Posted by Constable Odo View Post

Is there some sort of faction trying to bring down Apple.

Maybe the one based in Redmond?

Of course! Apple have become 'The Man' and everyone always tries to bring down 'The Man'

I'm not convinced by any of these 'costs' they're just journalistic nonsense. The key point of difference with iPods (& it seems iPhones) is design & software I'm sure most of the components can be found elsewhere. Both are very expensive and in Apple's case must be regularly engaged for updates & refreshes the BOMs always neglect these and sweep them under the carpet - a trick that I'm sure Apple's CFO would love to know.

McD
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post #25 of 28
Regardless of the margin, I believed that Apple cut some serious corners in these new products that will come back and bite them in the but. I owned the nano for a couple of days before returning it. Just try to use Cover Flow on the new nano and classic. The fundamental problem is the cheap, underpowered processors they used. No firmware update will ever fix it. It would not be as big of an issue if SJ did not boast so much about this feature. Not to put too fine a point on it, Cover Flow is a total disaster on these new units. This is one of those occasions where profit margin was more important to Apple than maintaining the integrity of a product. In addition, there are other defects with the new nanos. Apple is going to take a bath over this after Christmas. I wouldn't be surprised to see a class action lawsuit over the issue and I think I would actually support it. Apple has truly screwed the consumer with these new products. They pulled a total MS and I am not with them on this one.
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post #26 of 28
Quote:
Originally Posted by Mac Voyer View Post

No firmware update will ever fix it. It would not be as big of an issue if SJ did not boast so much about this feature. Not to put too fine a point on it, Cover Flow is a total disaster on these new units.

One thing that amazes me about my Macs is that even though they're both over 5 years old and take forever to convert video, they still feel really snappy. For the 'feel' part of look & feel, Apple have timing built into the design (they originally slowed down window opening to improve the user experience). This isn't a result of fast hardware, it's the ability to apply the right amount power to the right task at the right time - realtime. In other words, I'd have a bit more faith as to what software updates will bring as this is the bit they can change.

Have you checked other new iPods to see if you don't have a dud?

McD
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post #27 of 28
Does anyone else find these reports from iSuppli to be almost worthless?

I'm not just being a devil's advocate here. I honestly feel that iSuppli's BOM reports are media mongering guesswork with little if any utility. Their margin of error is far greater than any trending effect or difference between rival products.

Sure, it's nice to see a rough estimate of off the shelf component costs. But anything past that is complete bullshit.

In my opinion, journalists reporting iSuppli numbers should forgo mentioning margins. Or if margins are mentioned, it should be only to point out margin estimates based upon iSuppli numbers are completely make-believe and have no bearing on reality whatsoever. None.
post #28 of 28
Quote:
Originally Posted by McDave View Post

Have you checked other new iPods to see if you don't have a dud?

McD

Yes. After returning mine, I looked at every display unit. I also spent a good bit of time after the update looking at them. You see, I really wanted one in the worst kind of way. The Apple Genius is the one who told me that this is a limitation of the hardware and simply cannot be fixed. He suggested using it without Cover Flow. As an iPhone owner, I have come to love Cover Flow. CF on the iPhone is like using it on the Mac, only better. The new iPods are just not ready for it.
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