Supply issues estimated to drive cost of Apple's iPad 2 touchscreen up to $127
Components for the touch display on the new iPad 2 are estimated to cost Apple $127 for each device, an increase of more than $30 from the first-generation iPad.
iSuppli has revealed its regular bill of materials estimates for Apple products with the launch of the new iPad 2. As reported by DigiTimes, the most expensive component is estimated to be the $127 touchscreen, which comes in at a projected price markedly higher than the company's $95 estimate for the first-generation iPad.
"The reason for the increase comes in large part from manufacturing challenges that the touch screen makers have been experiencing since beginning high production," the report reads. "Production yields, though they have been improving, has been very low throughout 2010, and drove prices to be much higher than initially expected."
Other factors that are said to have caused the increase in component costs include the use of more expensive glue to improve efficiency and performance in the bonding of the touch display. In addition, the new iPad 2 has a thinner glass cover believed to be Gorilla glass, and a "more detailed inspection process requiring additional equipment for optical and panel examination."
The new A5 processor in the iPad 2 is also estimated to cost 75 percent more than the A4 processor found in the first-generation iPad. The A5 currently costs a presumed $14 per unit, though iSuppli said those costs would "erode quickly" as Apple ramps production and likely includes the new chip in its fifth-generation iPhone.
In all, the 32GB GSM iPad 2 is estimated to have a bill of materials cost of $326.60, while the CDMA version is pegged at $323.25. For comparison, iSuppli estimated the Motorola Xoom, with equivalent 3G radio and 32GB of memory, to have a total bill of materials cost of $359.92.
iSuppli's bill of materials estimates are significantly higher than the conclusions reached by UBM TechInsights. That company's research pegged the total bill of materials for the iPad 2 at $270 for the 32GB 3G-capable model.
Last July, Apple executives called out companies that estimate component costs for its products. Apple Chief Financial Officer Peter Oppenheimer advised that investors should not "put a lot of credence in these third-party reports," noting that some cost categories and components "never seem to make it into the reports."
iSuppli has revealed its regular bill of materials estimates for Apple products with the launch of the new iPad 2. As reported by DigiTimes, the most expensive component is estimated to be the $127 touchscreen, which comes in at a projected price markedly higher than the company's $95 estimate for the first-generation iPad.
"The reason for the increase comes in large part from manufacturing challenges that the touch screen makers have been experiencing since beginning high production," the report reads. "Production yields, though they have been improving, has been very low throughout 2010, and drove prices to be much higher than initially expected."
Other factors that are said to have caused the increase in component costs include the use of more expensive glue to improve efficiency and performance in the bonding of the touch display. In addition, the new iPad 2 has a thinner glass cover believed to be Gorilla glass, and a "more detailed inspection process requiring additional equipment for optical and panel examination."
The new A5 processor in the iPad 2 is also estimated to cost 75 percent more than the A4 processor found in the first-generation iPad. The A5 currently costs a presumed $14 per unit, though iSuppli said those costs would "erode quickly" as Apple ramps production and likely includes the new chip in its fifth-generation iPhone.
In all, the 32GB GSM iPad 2 is estimated to have a bill of materials cost of $326.60, while the CDMA version is pegged at $323.25. For comparison, iSuppli estimated the Motorola Xoom, with equivalent 3G radio and 32GB of memory, to have a total bill of materials cost of $359.92.
iSuppli's bill of materials estimates are significantly higher than the conclusions reached by UBM TechInsights. That company's research pegged the total bill of materials for the iPad 2 at $270 for the 32GB 3G-capable model.
Last July, Apple executives called out companies that estimate component costs for its products. Apple Chief Financial Officer Peter Oppenheimer advised that investors should not "put a lot of credence in these third-party reports," noting that some cost categories and components "never seem to make it into the reports."
Comments
On the screen front, if iSuppli is right about yield issues for the current screen, this doesn't bode well for an iPad-sized retina display
these cost estimates are useless. no one knows what kind of deal these companies are getting on components.
I'm pretty sure Apple, especially Steve Jobs , won't allow this.
Won't allow what?
There will be no retina in the iPad3. There will also be no iPad 3 in the fall, but that goes without saying. That's all.
wow, i could save a lot of money buy building my own iPad, rather than buying it from Apple.
these cost estimates are useless. no one knows what kind of deal these companies are getting on components.
Exactly. Besides, these never consider marketing, R&D, employee salaries, etc. Interesting to think about, but otherwise useless.
I heared, there are display issues with the iPad 2 ( yellowish spots or so). Did any of you guys observe something like that, or is this just a couple of unlucky guys who happend to get a monday product?
Really? You wanna derail this thread to talk about that? I think there are probably enough threads discussing it already. Perhaps you ought to start here: http://forums.appleinsider.com/search.php
Are these price estimates for components bought on the open market or are they estimates of what prices apple is actually paying?
I assume that all of the companies will boast that they have superior acumen in knowing Apple's real costs and that they aren't naive enough to use spot market component pricing.
I heared, there are display issues with the iPad 2 ( yellowish spots or so). Did any of you guys observe something like that, or is this just a couple of unlucky guys who happend to get a monday product?
Heared, eh?
Well, the tech media is reporting that these yellow spots are caused by a chemical used in the manufacturing process; normally this substance dissipates before the finished item ends up in the market, but due to the short lead time, there are units that haven't fully completed this process. The same phenomenon was noted in many of the initial iPhone 4 units.
Nice tangent.
Please stay on topic. Thank you.
Heared, eh?
Well, he meant to say 'DONE heared'. As in "I done heared possums makes good eatin'".
Well, he meant to say 'DONE heared'. As in "I done heared possums makes good eatin'".
loydb: Dammit, now I want possum.
HaHa! You guys are killing me
If these numbers are anywhere close to true, then Apple is selling these for an excellent price. Volumes are everything, I guess. I seem to recall that when I worked for a manufacturer, years ago, which produced products on the order of 50,000 per year, that they needed to get 3x the parts cost in order to make a profit (considering all the overhead costs).
I wonder if the Xoom is sold at a loss?
I fail to find any reference to sites stating the glass as gorilla glass. Any confirmation of that?
Here's my rumor, and I think that I'm more on the money than many of the insane and ridiculous rumors that float around, with most of them turning out to be pure baloney.
There will be no retina in the iPad3. There will also be no iPad 3 in the fall, but that goes without saying. That's all.
The iPad retina display is hardly insane, it's probably in test. The idea that they up their game to two releases a year, for one year, is not insane either.
On the report, if Apple has low margins then so does everyone else. Lower.
it's nice to have BOM cost breakdowns from two different sources, if only to demonstrate that these estimates are all a load of rubbish and the only people who know the iPad's BOM cost work at Apple.
On the screen front, if iSuppli is right about yield issues for the current screen, this doesn't bode well for an iPad-sized retina display
The key word here is estimate. These estimates by the iSuppli, etc. are useful to the investor as a guide to the economics. However, anyone with any sense takes them as only estimates. They are particularly useful in comparing different products since errors they make are likely to be made across products. The interesting thing here is that both iSuppli and UBM estimate the Xoom to have higher build costs.
Since we never get real costs from Apple, (strategic information) then we must rely on the educated estimates. Of course will never know the savings that Apple gets by its large buys, investment of billions in key component development and production, etc. The best we can do is estimate from their financial reports.
The iPad retina display is hardly insane, it's probably in test. The idea that they up their game to two releases a year, for one year, is not insane either.
On the report, if Apple has low margins then so does everyone else. Lower.
Actually, it?s very unrealistic at this point, which is proven by the iPad 2 not having a ?retina display?.
You?re talking about a low power GPU used in smartphones pushing 3,145,728 pixels when a 21.5? iMac only pushing 2,073,600 pixels and the 27? iMac pushing 3,686,400 pixels yet having considerably more powerful dedicated GPUs.
But that?s just the GPU, it?s not accounting for the ability to mass produce the display (which has been and still seems like the one component holding back even more iPad sales) and the additional power needs (which simply isn?t an issue with an iMac since it?s constantly plugged in).
Won't allow what?
Won't allow high priced components/parts to become an obstacle to build a fine device.
Exactly. Besides, these never consider marketing, R&D, employee salaries, etc. Interesting to think about, but otherwise useless.
Not useless. You are perfectly correct in you list of items not covered. However if you take the cost of components and add the cost of assembly (that charged by the company that does so, not actual labor cost) then you have the actual cost of building the product. If you subtract this from the selling price you get Gross Margin (I believe that sometimes advertising and/or shipping is included though I think Apple does not). This is a very important data point for investors.
Most of the items you mention are to some extent fixed (at least over the course of a given time period). They are not dependent on the number of products sold. Therefore, their cost per item will go down id you sell more than anticipated. The cost of production, however, is more or less fixed per unit (assuming components or labor do not significantly change during the period).
After all the other business expenses are accounted for and allocated to the individual products, you get the NET margin. The total of that being net profit for the time period.
So these estimate actually do help the investor get some kind of idea as to the factors in the model. Gross margins are a huge issue, as Apple maintains its extraordinary profitability by its ability to maintain exceedingly high margins by industry standards. (It can do this because the products it builds are of such high quality.)