Apple's profit margin on Mac minis slimmer than usual

Posted:
in Current Mac Hardware edited January 2014
Apple's latest Mac mini continues to demonstrate the company's capacity to develop personal computers that are both smaller and more attractive than those of its rivals, but achieving its sleeker design footprint comes at the expense of razor-thin profit margins, a new tear-down cost analysis reveals.



Market research firm iSuppli, which has made a name for itself in recent years by tearing apart the some of the hottest electronics products on the market and then performing an analysis of their component makeup, says the new entry-level $599 Mac mini carries a bill-of-materials of $376.20, which increases to $387.14 when manufacturing costs are added.



Assuming the study is accurate, that leaves Apple with just over $200 in margin potential before factoring in costs associated with hardware engineering, royalties and licensing fees, software development, software loading and test, shipping, logistics marketing and other supply channel fees.



“Unlike most desktop computers from other brands, the Mac Mini and, indeed, Apple’s entire Mac line make extensive use of components designed for notebook computers,” said Andrew Rassweiler, director and principal analyst for iSuppli. “This enables the Mini and other members of Apple’s computer line to achieve their very sleek and compact form factors, and to reduce energy consumption. However, the use of these components, along with other cost adders like software, yields a computer that is more expensive to make.”



For example, iSuppli notes that the Mac mini’s focus on mobile components starts at the top with its use of Intel Corp.’s Core 2 Duo P7350 microprocessor, which is designated as a mobile chip. The model dissected by the firm incorporated a 2GHz clock speed version the P7350, which carries an estimated price of $118.35. The high-end $799 Mac Mini features a 2.26GHz version of the microprocessor.



Another mobile microchip embedded in the Mac Mini is the Nvidia GeForce 9400M graphics and I/O controller hub, which carries an estimated price tag of $65.16. This is the same part commonly uses by Apple in its MacBook line, iSuppli notes.



Other mobile components in the Mac Mini that command a price premium include the 2.5-inch form factor Hard Disk Drive (HDD) and the slim Optical Disk Drive (ODD). The Hitachi 120GByte 2.5-inch-format HDD comes in at an estimated price of $46, while the ODD is priced at $32.







iSuppli also notes that in spite of the mini's use of some mobile components, and the latest energy-saving silicon process geometries, it sports a great deal of processing power. As a result, the diminutive desktop employs a 110-watt external power supply, representing a higher power usage than the first-generation model, which employed an 85-watt power supply.



“The new Mac Mini is a more powerful computer than the first-generation model, causing its peak power requirements to rise,” Rassweiler said. "On the other hand, the Mac Mini has earned its green designation as it consumes less than 13 watts when in idle mode."



A full cost analysis of the $599 Mac mini can be seen in the table above.
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Comments

  • Reply 1 of 202
    patrollpatroll Posts: 77member
    So much for the Apple tax.
  • Reply 2 of 202
    tsirkotsirko Posts: 11member
    the mini should be almost no profit product for apple! to introduce macindosh to the 90% of the world :S





    apple tax sucks :S
  • Reply 3 of 202
    eaieai Posts: 417member
    The Mac Mini increased by £100+ here in the UK, which stopped me buying one...



    It's $822 in the UK and $628.95 in the US (both prices including tax) - paying 30% more to buy in the UK hardly seems justified.
  • Reply 4 of 202
    brianusbrianus Posts: 138member
    OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?
  • Reply 5 of 202
    My guess is that Apple sees the mini as a means to gain market share. Apple really seems to do it's homework when it comes to market research (though it doesn't keep them from trying unknowns ie Cube). I can see this machine to be ideal for switchers, those who have used a PC all their lives, maybe lured to take a look at the mac b/c of the iPhone. It's a toe in the water kinda thing. Today a Mac Mini, tomorrow a 24" iMac, MacBook, or Mac Pro. I'd say that once you can get them to start using Mac OS X, you pretty much got'em.
  • Reply 6 of 202
    paxmanpaxman Posts: 4,595member
    Quote:
    Originally Posted by tsirko View Post


    the mini should be almost no profit product for apple! to introduce macindosh to the 90% of the world :S





    apple tax sucks :S



    'Apple Tax' is a silly term right up there with 'fanboy', the use of which signifies low intelligence, lack of insight and plain old laziness. Please, lets refrain from using stupid terminology whenever possible.
  • Reply 7 of 202
    kasperkasper Posts: 941member, administrator
    Quote:
    Originally Posted by brianus View Post


    OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?



    That's only for parts and manufacturing. These machines have to be developed, marketed, shipped, etc. Even if Apple sees a $150 profit, that's just 25%, which is well below the company average of the low-to-mid 30% range.



    You can see in our mac price guide:



    http://www.appleinsider.com/mac_price_guide/



    that resellers are selling the $599 model for $549, which means that they buy the machine from Apple for just north of $500. So that suggests margins could be less than 20%. Alternatively, iSuppli could just be wrong in their assessment. Personally, I believe it costs Apple less to make the $599 Mac mini than iSuppli estimates.



    K
  • Reply 8 of 202
    eaieai Posts: 417member
    Apple make about 70-80% profit in the UK, about 40% profit in the US (before marketing, distribution etc). Dell on the other hand make 6.5% (net) profit, HP 5%.
  • Reply 9 of 202
    stukdogstukdog Posts: 53member
    I wish these people would stop being quoted. They are rarely accurate.



    First, many of the parts that are in the Mac mini are also in the Macbook line. That means parts can be ordered in MUCH bigger quantities, decreasing the price. iSuppli has no idea the contracts Apple has with the part providers.



    I remember a few months ago, they took apart the iPod Shuffle and made a mention of a brand new part that had never been seen and they weren't completely sure what it was used for. But somehow, they were still able to set a price even lacking this knowledge.
  • Reply 10 of 202
    Quote:
    Originally Posted by eAi View Post


    The Mac Mini increased by £100+ here in the UK, which stopped me buying one...



    It's $822 in the UK and $628.95 in the US (both prices including tax) - paying 30% more to buy in the UK hardly seems justified.



    We've been thru this a million times before.



    There are four factors that contribute to this difference: (i) Your VAT is higher; (ii) Your retailing costs are higher; (iii) There is the $/£ exchange rate risk that necessitates some some padding; (iv) Many EU countries -- not sure about UK, though -- have laws the require the manufacturer to dispose/recycle their consumer electronic products; companies pass on this cost to the consumer.



    Finally, this price difference is not unique to Apple.
  • Reply 11 of 202
    Quote:
    Originally Posted by brianus View Post


    OK, I admit I don't know squat about business, but how is $212 a "razor thin profit margin" for a $599 machine? What as a percentage of the cost to build would be considered "normal"?



    The $387.14 is purely the cost of the hardware. There are also cost to assemble it, packaging, cost of the software (there's still cost even if the software is in house), cost of marketing and distribution. Also keep in mind that $599 is a retail price, distribution price (price that authorized reseller pay) is even lower than that. So yes, the margin is really thin for Mac Mini.



    With that said, I can't help but grim knowing that I just pay $450 for the newest model of Mac Mini on a price mistake. Sweet
  • Reply 12 of 202
    Quote:
    Originally Posted by eAi View Post


    Apple make about 70-80% profit in the UK, about 40% profit in the US (before marketing, distribution etc). Dell on the other hand make 6.5% (net) profit, HP 5%.



    Source?
  • Reply 13 of 202
    teckstudteckstud Posts: 6,476member
    Who cares? Apple makes up for it by their ridiculous gross ups on their MacBook, iPhones , iPods, etc so that this means nothing. Not to mention the $10 Apple tax on the iPod Touch ugrade. Fanboys can defend all they want but the reality is Apple is overpriced for what is inside the devices.

    Apple just dropped prices and they'er still to high. That white MacBook for $1000? Indeed!
  • Reply 14 of 202
    dr millmossdr millmoss Posts: 5,403member
    Quote:
    Originally Posted by Kasper View Post


    Personally, I believe it costs Apple less to make the $599 Mac mini than iSuppli estimates.



    I suspect as much too. I don't know how iSupply estimates the cost of components, especially those that Apple has the leverage buy at substantial discounts.
  • Reply 15 of 202
    teckstudteckstud Posts: 6,476member
    Quote:
    Originally Posted by paxman View Post


    'Apple Tax' is a silly term right up there with 'fanboy', the use of which signifies low intelligence, lack of insight and plain old laziness. Please, lets refrain from using stupid terminology whenever possible.



    Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?
  • Reply 16 of 202
    zandroszandros Posts: 537member
    Quote:
    Originally Posted by AppleInsider View Post


    The high-end $799 Mac Mini features a 2.26GHz version of the microprocessor.



    It does not.
  • Reply 17 of 202
    Quote:
    Originally Posted by teckstud View Post


    Right- and you'll stop using the tern "troll" whenever somebody says anything against the grain. Fanboy is not stupid but a reality. How else do you explain how someone cn defend every shortcoming in any given Apple product- all the time, incessantly?



    Then what are you -- an Apple panboy?
  • Reply 18 of 202
    brianusbrianus Posts: 138member
    Quote:
    Originally Posted by abby1448 View Post


    The $387.14 is purely the cost of the hardware. There are also cost to assemble it, packaging, cost of the software (there's still cost even if the software is in house), cost of marketing and distribution. Also keep in mind that $599 is a retail price, distribution price (price that authorized reseller pay) is even lower than that. So yes, the margin is really thin for Mac Mini.



    Well, manufacturing costs were included in the estimate. I assumed that included packaging and assembly. The software is basically the same as for all their other models so I'm not really sure how you quantify that for the Mini specifically. You mean like, specialized drivers or something? And we all know how much effort Apple puts into marketing the mini.... \



    Good point about the distribution price though. I forgot about that.



    Quote:

    Even if Apple sees a $150 profit, that's just 25%, which is well below the company average of the low-to-mid 30% range.



    Is that a low percentage "for Apple" or for tech companies in general?
  • Reply 19 of 202
    Mac Mini's are a gateway drug. Apple would sell them at a loss.
  • Reply 20 of 202
    Quote:
    Originally Posted by Zandros View Post


    It does not.



    It's an upgrade option.....
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