Apple's new iPod nano sports fattest profit margins yet
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.
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.
Comments
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)
"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.
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.
- 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.
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.
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!!!
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.
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.
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:
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"
...
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.
- 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!
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...
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.....
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.
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.
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.
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.