Estimates peg HomePod build cost at $216, Apple's margin smaller than competitors

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in General Discussion
According to the latest research from TechInsights, Apple is shelling out $216 to build HomePod, meaning margins from the tech giant's first smart speaker are much slimmer than those of its flagship iPhone line.




If the estimate is correct, Apple is generating margins of approximately 38 percent on the $349 HomePod, reports Bloomberg. The figure is not only lower than iPhone and iPad, but also competing smart speakers like Amazon Echo and Google Home, which boast margins of 56 percent and 66 percent, respectively.

A breakdown of component costs finds HomePod's microphones, tweeters, single woofer and power management hardware add up to $58, while other miscellaneous parts like the OLED panel come out to another $60, the report said. TechInsights pegs Apple's A8 chip at $25.50, as the housing and other unmentioned components run another $25. Manufacturing, testing and packaging tack on $17.50 to the final cost, the firm estimates.

The parts in question were laid bare in a teardown conducted by iFixit earlier this week.

"Apple is compressing their margins a bit, wanting to go big or go home," said TechInsight manager Al Cowsky. "In doing so, I suspect they reduced the selling price from a normal Apple margin in order to sell more units on volume."

Apple typically nets huge margins on its mobile device lineup, competently leveraging its supply chain sway and massive share of the memory market to drive down component and assembly pricing.

For example, TechInsights in November estimated a 64-gigabyte iPhone X costs about $357.50 to make, giving Apple a 64 percent margin on the $999 handset. The mid-tier iPhone 8 reaps a lower margin of 59 percent, the firm said.

As usual, the cost estimate is just that and should not be taken as gospel. Apple CEO Tim Cook himself commented on supply chain "guesstimators" in 2015, saying he has never seen an estimated bill of materials breakdown from "that's even close to accurate."
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Comments

  • Reply 1 of 39
    MacProMacPro Posts: 18,163member
    Quality doesn't come cheap.  This is a heck of a product.
    racerhomie3watto_cobramacxpresszroger73
  • Reply 2 of 39
    foggyhillfoggyhill Posts: 4,767member
    So, its a bit like the Airpods, wonder if that's a new Apple strategy, sure seems like it.
  • Reply 3 of 39
    zonezone Posts: 53member
    so quality built an amazing sound... want a second one! A few tweaks and this will be a rockstar product!!! Sharktank would not like this product, not high enough margins. Would not get a deal
    watto_cobramwhite
  • Reply 4 of 39
     :| These things are mostly useless, since so many things are unaccounted for and it leads to people, who don't know any better, to actually believe these numbers as fact. 
    watto_cobralkrupp
  • Reply 5 of 39
    SoliSoli Posts: 8,748member
    Any cost breakdown reports need to be taken with a grain of salt, but this is an impressively high component cost compared to its MSRP. The device certainly feels, looks (including the iFixit teardown), and sounds like the components would be in that ballpark range; and the MSRP is definitely lower than I'd expect for its market position.

    That said, there are several questionable statements about the component breakdown. For example, they refer to "an additional $60 includes various smaller parts like the lighting system used to display the Siri animation on the top of the device," which is just the 38mm Apple Watch display, but I don't think it contains the capacitance touch or force touch elements of the display, and can probably be the Series 0 Watch display with the lower brightness. These could also be discarded displays that weren't good enough for the Apple Watch but would be perfectly fine for use under a translucence, plastic top cover for the HomePod's basic animation.

    Here are the results from IHS for the iPhone 8 Plus. They say the A11 Bionic with 6 cores is $27.50, but the A8 in the HomePod, which very well could discards that may have a core disabled because it's not needed is $25.50? Those numbers don't click for me. Other values fo this build do seem low, so it could even out, but this "estimate" is sending up a lot of red flags.

    edited February 2018 baconstangwatto_cobra
  • Reply 6 of 39
    slurpyslurpy Posts: 5,118member
    If this is true, and it doesn't take into account other costs like R&D, marketing, shipping, packaging, etc, that means Apple is barely making margin on this product. So much for the whole LOL WHAT A RIDICULOUSLY OVERPRICED PRODUCT horse-shit we've been hearing for the past few months, while comparing the price to trash like the echo. 
    lolliverwatto_cobramacxpressStrangeDayspatchythepirate
  • Reply 7 of 39
    Rayz2016Rayz2016 Posts: 4,561member
    The figure is nowhere near the truth simply because Apple doesn’t order the parts separately for each HomePod; they buy in bulk and get huge discounts for doing so. 
  • Reply 8 of 39
    lukeilukei Posts: 332member
    No way on earth Apple is working on such a low margin. These BOM estimates are way off beam. 
  • Reply 9 of 39
    pureluxlifepureluxlife Posts: 1unconfirmed, member
    Sorry, but this is absolutely BS. Most of this hardware is dirt cheap to manufacture, and apple gets all there parts massively below any prices you would ever see published because apple is one of the largest customers on the market and orders in major bulk. 216 is about the same it costs them to build an iphone, and theres no way youre concing me a crappy home pod gimmick product cost in the same ballpark and a full fledged handheld Computer(iphone). 
  • Reply 10 of 39
    SoliSoli Posts: 8,748member
    Sorry, but this is absolutely BS. Most of this hardware is dirt cheap to manufacture, and apple gets all there parts massively below any prices you would ever see published because apple is one of the largest customers on the market and orders in major bulk. 216 is about the same it costs them to build an iphone, and theres no way youre concing me a crappy home pod gimmick product cost in the same ballpark and a full fledged handheld Computer(iphone). 
    I don't think anyone is going to argue with you about the stated component prices, but to suggest that Apple uses "hardware [that] is dirt cheap to manufacture" is absolutely false. Apple has repeatedly shown that they go out of their way to use better components than the competition, even if many believe that they're the exact same based on some superficial spec sheet listing. Years ago AnandTech even speculated that Apple had a deal to source the most power efficient chips for their Macs despite the model numbers being identical. This is because not all chips are exactly the same, and I have to assume Apple was paying a premium for that benefit or had some other arrangement that would benefit Intel.

    You can find a cheap 4" woofer online, but that one component is made up of many components that Apple probably sourced or even designed for a vendor to build so that it would offer the right kind of sound. This means it's likely not an off the shelf component which means they likely paid more for it than some run-of the-milll 4" speaker, despite economies of scale potential being in effect for even this new product category.

    Then you have many other materials as well as material that make up components Apple sources from vendors where they will demand that the workers are paid fairly for the region, not overworked, and aren't made with harmful chemicals that are bad fo the environment. You may find these to be pointless considerations, but Apple has webpages detailing just how important these aspects are to the company. You could even argue that it's all for publicity, but that's a moot point, as it is part of their ethos and then efforts do end up costing them money.

    Finally, Apple has massive mindshare. This means they can easily sell a lot more products with little advertising compared to an unknown startup, but it also means that they're scrutinized a lot more, which means R&D costs may have to be increased so that they can test for unknowns which will raise costs, as well factor in potential legal issues for the truly unknowns which also get added to the product costs before any profit margin can be attributed.
    edited February 2018 watto_cobrarotateleftbyteschlack
  • Reply 11 of 39
    Useless data.

  • Reply 12 of 39
    LatkoLatko Posts: 351member
    Soli said:
    . This means they can easily sell a lot more products with little advertising compared to an unknown startup, but it also means that they're scrutinized a lot more, which means R&D costs may have to be increased so that they can test for unknowns which will raise costs, as well factor in potential legal issues for the truly unknowns which also get added to the product costs before any profit margin can be attributed.
    That could be right, in this case see whyd.com which seem to have inspired Joni
  • Reply 13 of 39
    BluntBlunt Posts: 223member
    foggyhill said:
    So, its a bit like the Airpods, wonder if that's a new Apple strategy, sure seems like it.

    By the way these wireless earphones were tested for a Dutch newspaper and the Airpods were rated the highest (8.5). The test was done by Tweakers who are very biased towards Android.
    watto_cobra
  • Reply 14 of 39
    No need to get caught up on the accuracy, it's the point that the article is making that is worth noting. The point is that they are trying to create a narrative that Apple is having to cut their margins on this product in order to compete. It has a sort of a schadenfreude type of ring to it. Everyone loves to hate Apple, even the Washington Post has published a hate article on HomePod where they are bitching throughout the entire piece about how the HomePod is a failure because it won't give you transit directions or be a personal assistant. 
    watto_cobraStrangeDays
  • Reply 15 of 39
    No need to get caught up on the accuracy, it's the point that the article is making that is worth noting. The point is that they are trying to create a narrative that Apple is having to cut their margins on this product in order to compete. It has a sort of a schadenfreude type of ring to it. Everyone loves to hate Apple, even the Washington Post has published a hate article on HomePod where they are bitching throughout the entire piece about how the HomePod is a failure because it won't give you transit directions or be a personal assistant. 
    It’s a selective narrative that’s annoying. If the number is low, then it’s Apple tax. When it’s high, well.. they can’t compete so have to reduce profit. 
    It’s not the number is righ or wrong. It’s the narrative is always wrong. 
    edited February 2018 watto_cobraStrangeDays
  • Reply 16 of 39
    Apple’s strategy is to make money on Apple Music services, not the HomePod.

    You can’t review the HomePod, which is tied to Airplay and Apple Music, on its own.

    They could have zero margin and still it would be a great investment, because it serves their  subscription directly.

    Heck, I even considered moving to Apple Music with HomePod, if it weren’t for the lack of any reliable solutions to move my playlists and a better UI/UX.
  • Reply 17 of 39
    robjnrobjn Posts: 205member
    Apple have publicly stated that they do not price any products by margin.
    watto_cobra
  • Reply 18 of 39
    Useless data.

    Useless conjecture. I wouldn’t even call this data.
    watto_cobra
  • Reply 19 of 39
    mike1mike1 Posts: 1,869member
    Having spent many years in the audio biz, it looks like the costs associated with the acoustical components (drivers, DSP and amplifier) that they are overestimating the costs of those components in the volume that Apple is buying them. Can't speak for the rest. I'm sure Apple's margins are just fine.
  • Reply 20 of 39
    macxpressmacxpress Posts: 4,821member
    Rayz2016 said:
    The figure is nowhere near the truth simply because Apple doesn’t order the parts separately for each HomePod; they buy in bulk and get huge discounts for doing so. 
    True, and it also doesn't take into account for the R&D, assembly, shipping around the world, advertising, and selling it in retail stores as well as other outlets. This all costs Apple money. 

    That being said, I don't think Apple is making a huge profit on this. Its not like this is a $50 device as built and they're selling it for $350. I find it hard to believe they're making tons of money off each sale. They're hoping they sell a lot of them to make up their costs. 
    watto_cobra
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