I'm thinking about selling my new iPad and getting the Nexus 7, looks pretty sweet and while I do like the new iPad, it's not really much better than my Galaxy Tab 8.9.
That's nice. I hope you're happy with your Nexus 7.
I wonder why "cost analyses" are always limited to "Parts + Manufacture"… OK, throw in "fuzzy" mention of the inevitable but unknown R&D costs… but why do they always stop there, as if there are no other associated costs of bringing a product to market, and maintaining its presence there? These are not insignificant factors weighing on potential profitability.
Here are a few that leap to mind, in no particular order:
- Packaging (if not included in the "manufacturing cost" total)
- Warehousing, Distribution and Fulfillment. (probably outsourced, but still represents a substantial cost for volumes numbering in the millions)
- Marketing & PR.
- Customer Support. (Never insignificant for large-volume "computer" products)
- Warranty & Service processing, fulfillment and defective-product replacement. (Consider a 5% replacement/repair rate to be the high side of normal)
- All of the personnel and administrative costs of supporting the above list...
Just these can easily add quite a few $ per unit to the costs, depending on volume sell through. They are more like R&D costs in that they are "fuzzy" and unknowable… but they shouldn't be discounted in articles like these. For the "total cost of doing business" around a product, surely you could add another estimated 10% to the base cost without being too far off the mark…?
It is a standard accounting breakdown:
Definition of 'Cost Of Goods Sold - COGS'
The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales".
Investopedia explains 'Cost Of Goods Sold - COGS'
COGS is the costs that go into creating the products that a company sells; therefore, the only costs included in the measure are those that are directly tied to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded. The exact costs included in the COGS calculation will differ from one type of business to another. The cost of goods attributed to a company's products are expensed as the company sells these goods. There are several ways to calculate COGS but one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period then deducting the ending inventory. This calculation gives the total amount of inventory or, more specifically, the cost of this inventory, sold by the company during the period. Therefore, if a company starts with $10 million in inventory, makes $2 million in purchases and ends the period with $9 million in inventory, the company's cost of goods for the period would be $3 million ($10 million + $2 million - $9 million).
Think it through. When Google makes an Android device, they have to pay Microsoft a license fee - so that is a cost that must be included.
When Apple makes an iOS product, they use their own OS - which is included in the R&D numbers.
The R&D for an iPad mini are largely the same as for the iPad maxi. And R&D costs dont increase per device sold - not for Apple - , those costs are sunk.
RAs for support, there are warranty costs even if the customer gets AppleCare. The first 90 days is covered by warranty.
There are costs, but that is true about the iPod touch, our comparison model.
So you're simply guessing about Apple's costs. You could have saved a lot of typing by just stating that up front.
I didn't guess the retail price of the iPod touch which you got spectacularly wrong. Which largely invalidates the rest of your arguments.
And way to ignore the rest of my post. Firstly you ignored the big gaping mistake you made on the retail cost of the iPod touch. You were out by $30. You are also ignoring my main point - that the margins are for the line not the cheapest models and Apple deliberately keeps it's lower models - on the touch - with inadequate memory to entice consumers to gravitate to the next model. However they still have a cheap model in the game.
You are ignoring all this because the $199 iPod touch - which has a retina display and a A4 chip - disproves your theory. As for asking me for proper stats iSuppli's recent reports on the iPod touch are behind a firewall. Which means you know as much as me on that one, but less than most people on the actual retail cost of the iPod touch. Which largely should exclude you from any discussion on margins.
Not true. iSuppli most certainly does not use retail prices. In fact, for many of these components, there ARE no retail prices - they are only available at wholesale from the manufacturer. iSuppli's estimates are based on what they think the manufacturer pays. They may not be as accurate for Apple as for other companies, but it is their estimate. Regardless, that point simply makes it even less useful to look at iSuppli numbers.
Ok it uses wholesale prices for other companies. We would have to assume that Apple is cheaper, particularly if it uses old components used in the old iPad 2 etc.
You're still arguing contradictory points. On one hand, you're arguing that at least the base iPod Touch at $199 is sold at break even or very low margin. Then you argue that a 7-8" iPad Mini could be sold at $199 with some profit. Please explain how Apple could do that. If the iPod Touch is break even at $199 or very low margin, how do they sell a device with 4 times the screen size, much larger case, much larger battery, and much faster CPU for the same price and make a profit?
The screen size will be cheaper as it is not a retina display. The battery size will not be huge as it needs to power as small a number of pixels as the iPhone retina displays. The graphics card - the same. Only the CPU needs to be in any way "expensive" to compete with the Nexus - but they may not care on the specs of the CPU and just depend on the iPad selling on brand. It wont be the iPad 3 chip, possibly the iPad 2. This will allow for some Android fan boy crowing but what of it.
Very few manufacturing companies can survive on less than 20% margin. The general rule of thumb is that if a manufacturing margin is less than 30%, you have to think very hard about it or have a high volume/low overhead strategy to justify it.
That would be overall margin across the entire line, rather than on one product. Apple can use higher margins on iPhones and top end iPads, and in the over all line of iPad minis to subsidise one measly model.
But rather than generalizations, let's look at specifics. AMZN is not a manufacturing company in any real sense and manufactured products are only a small fraction of their revenues, so looking at their overall picture is going to underestimate their overheads (manufacturing adds overheads that don't have a major part in their current product lines - even if you outsource - things like quality, scrap, R&D etc). But in their most recent quarter, AMZN's overheads were 23% of revenues. So even if a new manufactured didn't have any costs for R&D, scrap, quality, support, etc, they'd need a gross margin of at least 23% just to break even. And since manufacturing DOES have added costs that don't appear in a pure distribution model (as represented by the 23% figure), they'd actually need greater than 23% gross margin just to break even on the product sale.
Again would be overall margin across the entire line, rather than on one product. Amazons total gross margins are 2%, if they can afford a loss leading hardware device to sell content, Apple can afford a loss leading model of one device which can be offset by prices elsewhere.
Your fallacy is that one low end model model which sells below cost, at cost, or low margins will destroy margins elsewhere. It wont
We do need to get recent figures on the iPod touch - selling for $199 not $229 - and on whether it is in profit using all your extra criteria on R&D etc. What we do know is the margins on the 8G model are much less than the margins on the 64G model, which is the exact same device with a few extra memory sticks probably costing Apple an extra 10-30$ max - the tear down in the article here says that google is paying $8 more for a 16G, or 2 8G sticks, than an 8G stick. The top end iPod touch sells for $200 more, and that is where the margins on the iPod touch line are made. Simply if the iPod touch is at cost at retail, the 64G is at 50% margins, and the mid range at 30%. If the iPod touch has 10% margins, the other margins increase sequentially. Thus Apple makes enough margins on the iPod touch line even if the cheap model is not getting the 25-40% margins of the overall line. And the cheap model comes with inadequate memory - 8G not 16 G - to encourage the purchasing higher models, after the customer has entered the store, or gone online. The jump to the middle level model is 28G memory.
Apple, if it follows this model, will look at the iPad mini line and say - across the whole line how can we make 30% - and put in the massive price differentials on memory alone to make the margins, while going cheap on a lower end model with underpar memory.
First, your own link says "The exact costs included in the COGS calculation will differ from one type of business to another." In reality, COGS can be determined a number of different ways. As just one example, for industrial products that go through distributors, the distributor often gets a substantial commission - up to 20% of the selling price. That commission can be included in COGS if you choose to do so (at least under some circumstances), but most people don't. There is some flexibility. In fact, we had some products where the distributor commission was greater than our COGS (we didn't include commissions in COGS), so COGS could vary by over 100% depending on how you count it.
More importantly, it's really irrelevant. COGS does not determine if a product is profitable by itself. You also have to factor in the overheads. Simply:
Revenues - amount of money received from the customer
COGS - amount of money spent to manufacture or buy the product
Gross margin - Revenues minus COGS
Overheads - All costs attributed to the product that are not included in COGS. This would include indirect costs like management's time, R&D, advertising, marketing, and so on.
Net income (profit) - Gross margin minus overheads
So a product might have very high gross margins but still not be profitable. In the examples above, most of the costs that iSuppli leaves out are overhead costs - which are very real costs associated with the product even if they're not direct manufacturing costs. But iSuppli also leaves out a number of costs that ARE included in COGS so you can't even use their figures to calculate a gross margin. For example, the following costs are part of COGS but not counted by iSuppli:
- Shipping. While your source is correct that OUTBOUND shipping is generally not included in COGS, inbound shipping usually is. The cost of getting the item to your door is a real manufacturing cost attributed to the raw material
- Scrap
- Quality cost. Some quality costs can be attributed to the product and included in COGS. You would not typically include the cost of setting up a quality program, but you would typically include the cost of individual piece inspections
Even some indirect costs (R&D, support, etc) can sometimes be counted as COGS if you have a way to quantify them and calculate the amount that's attributable directly to the manufacture of the product. In the case of an iPad, for example, OS development would generally not be counted in COGS, but the cost of developing a new machining process (or Liquidmetal back) very well could be. It doesn't have to be, though - it might be preferable to capitalize it and amortize the cost over the life of the technology when that is allowed.
First, iSupply numbers are complete wrong. They have no clue what a company is paying for parts. I personally know the pricing of some parts and have seen iSupply reports and their pricing has never been right on it always too high or too low.
Case and point, 6 months ago Fire was loosing money for Amazon and today it is making them money, There is no way Amaizon would be able to take that much cost out of the product in that short amount of time and suppliers do not drop their pricing that much. Have you seen component suppliers loosing or showing decrease earning not happening. So where did all the money go that iSupply claims came out of the product. It is not happening, Isupply number are just completely wrong. So this analysis is completely worthless.
Do you Apple fanboys really want to live in a world with no competition? Do you think that would spur Apple on to innovate and keep prices down? Would it hurt you to once in every 10 million venom filled posts to say that someone other than Apple is capable of producing something nice?
The Nexus 7 is getting great reviews and is priced extremely aggressively. There's no reason why it shouldn't do well.
<strong>i think there is a argument for, when apple has no competition they produce better products</strong>
where was the competition when the iPad was released?...
where was the competition when the iPhone was released?...
where was the competition when the iPod was released?
where was the competition when the iMac was realeased?
where was the competition when the " iApple II" (LOL... bad pun, yes) was released? (in this case it was expensive and the commodore PET was cheaper, but the PET did not have color)
IMO saying that we need competition solely to provide CHEAP prices, is stupid!...
in order for something to be the same and cheaper, requires copying.
hence, cheap means the absence of originality. (the the only thing cheap/free that is original is university research)
I wonder why "cost analyses" are always limited to "Parts + Manufacture"… OK, throw in "fuzzy" mention of the inevitable but unknown R&D costs… but why do they always stop there, as if there are no other associated costs of bringing a product to market, and maintaining its presence there? These are not insignificant factors weighing on potential profitability.
Here are a few that leap to mind, in no particular order:
- Packaging (if not included in the "manufacturing cost" total)
- Warehousing, Distribution and Fulfillment. (probably outsourced, but still represents a substantial cost for volumes numbering in the millions)
- Marketing & PR.
- Customer Support. (Never insignificant for large-volume "computer" products)
- Warranty & Service processing, fulfillment and defective-product replacement. (Consider a 5% replacement/repair rate to be the high side of normal)
- All of the personnel and administrative costs of supporting the above list...
Just these can easily add quite a few $ per unit to the costs, depending on volume sell through. They are more like R&D costs in that they are "fuzzy" and unknowable… but they shouldn't be discounted in articles like these. For the "total cost of doing business" around a product, surely you could add another estimated 10% to the base cost without being too far off the mark…?
Those are mostly indirect costs that are tougher to estimate, and even if estimated, tougher to allocate to particular products of particular makers.
Douchebags like you are what give apple fans a bad name. From the New york times, engadget, the verge, CNET, Washington post, Allthings D, Mashable, CNN, Fox, NBC the list goes on and on, have said this tablet is not only good but its very good. The opinion on this tablet is that it is an absolute steal at the price point. I have not read one review that does not recommend getting this tablet.
Most reviews also agree this makes Kindle fire look like a joke. I have an ipad 2 and a Mac pro. But I also have a galaxy nexus, and a Samsung Windows 7 desktop. My favorite product out of all 3 is without a doubt my ipad 2 followed by my nexus. I just love technology. Pathetic attitudes like that, are makes outsiders without apple products think were all douchbags that walk around smelling our own farts.
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
You can complain all you want about Apple 'douchebags', but the ones who are really asinine are those who show up in an Apple forum to diss it. Tough, if they can't handle the pushback.
And, I am sure they appreciate your services in sticking up for them! Now, go play with your Nexus....
You're still arguing contradictory points. On one hand, you're arguing that at least the base iPod Touch at $199 is sold at break even or very low margin. Then you argue that a 7-8" iPad Mini could be sold at $199 with some profit. Please explain how Apple could do that. If the iPod Touch is break even at $199 or very low margin, how do they sell a device with 4 times the screen size, much larger case, much larger battery, and much faster CPU for the same price and make a profit?
Very few manufacturing companies can survive on less than 20% margin. The general rule of thumb is that if a manufacturing margin is less than 30%, you have to think very hard about it or have a high volume/low overhead strategy to justify it.
But rather than generalizations, let's look at specifics. AMZN is not a manufacturing company in any real sense and manufactured products are only a small fraction of their revenues, so looking at their overall picture is going to underestimate their overheads (manufacturing adds overheads that don't have a major part in their current product lines - even if you outsource - things like quality, scrap, R&D etc). But in their most recent quarter, AMZN's overheads were 23% of revenues. So even if a new manufactured didn't have any costs for R&D, scrap, quality, support, etc, they'd need a gross margin of at least 23% just to break even. And since manufacturing DOES have added costs that don't appear in a pure distribution model (as represented by the 23% figure), they'd actually need greater than 23% gross margin just to break even on the product sale.
Again- I think the prices would be $249/$299- I can't reiterate that enough. But it is easily possible and reasonable chance they would have a $199.
First off, the iPod touch last year was a 28% GM ($144 cost $200 retail). And that was in 2011- so costs (of say memory, connectors, speakers, etc) have dropped from there. Second, a non-retina would be cheaper even though it is larger. Third, the case and battery will be more. The CPU will be the same comparably cost-wise as the A4 was last year for the iPod touch. So its not substantially more if at all. And if they sold the 8gb for $199, and a 32gb for $299, the 32gb model would easily make a large chunk of profit. If Apple makes a $249 model- it will be 16gb, not 8gb- no way they do half the storage of their competitors for more $.
Lastly, why do you keep putting words in my mouth. Never once did I say that an iPod Touch is sold at break even. It's clearly not. $144 doesn't equal $199 in the world I live in.
And please spare me with your knowledge of everything in the world, particularly gross margins. I deal with those numbers daily. 14 hours ago, you thought the iPod Touch was $229- and now you're an expert on the subject matter? Seriously examine yourself one day- you are a know-it-all... except you don't know-it-all.
I think Google's strategy here is to build out a tablet user base and provide enough users to entice developers to write more tablet specific apps (one of the biggest complaints about the Android tablet ecosystem). By providing a reasonably high quality and very attractively priced tablet, they might convince non-tablet owners to buy one (I don't think they have a chance of getting any iPad converts). People have already suggested that Google is planning a stable of Nexus tablets so if this one is somewhat successful we may see a more direct challenge to the iPad. I don't think anyone expects any Nexus tablet to take over the lead that the iPad has but they may succeed in expanding their base considerably. Given that there are so many Android phones out there, people will want to remain in the same ecosystem and have their media files available across all of their devices.
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
Well said! Fanboys forget that competition between companies drives them to innovate and release increasingly impressive products. We'd all be stuck using a 2.5G iPhone if nobody had challenged Apple.
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
Well said! Fanboys often forget that competition between companies is what drives them to innovate and release increasingly impressive products for us to use. We'd all be stuck using 2.5G iPhones from 2007 if nobody had challenged Apple.
Well said! Fanboys often forget that competition between companies is what drives them to innovate and release increasingly impressive products for us to use. We'd all be stuck using 2.5G iPhones from 2007 if nobody had challenged Apple.
This is, of course, nonsense.
Apple has a very high customer retention rate and thrives by selling new products to existing customers. They do that by making newer versions that are more attractive than the previous ones.
The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales".
Investopedia explains 'Cost Of Goods Sold - COGS'
COGS is the costs that go into creating the products that a company sells; therefore, the only costs included in the measure are those that are directly tied to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded. The exact costs included in the COGS calculation will differ from one type of business to another. The cost of goods attributed to a company's products are expensed as the company sells these goods. There are several ways to calculate COGS but one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period then deducting the ending inventory. This calculation gives the total amount of inventory or, more specifically, the cost of this inventory, sold by the company during the period. Therefore, if a company starts with $10 million in inventory, makes $2 million in purchases and ends the period with $9 million in inventory, the company's cost of goods for the period would be $3 million ($10 million + $2 million - $9 million).
And you might not guess it by my post, but I actually understand a great deal about COGS… (admittedly not *everything*, as I'm not an MBA… but I also assume most people don't, and so try not to get too technical in forum posts…)
The problem happens for me when they start to directly assign profitability potential based on these costs alone. Unless we're saying that their profit is based on Gross Margin alone… which it isn't. Operating costs and indirect expenses also matter when we're talking about something being profitable. At the end of the day, will the Nexus 7 be a "profitable product" for them? I'd say they're skirting right on the edge of that… it could bring a trickle of revenue, or remove a bit from their overall profits.
Will it hurt Google to do this? Certainly not…..
Anyway, my point here is, it's fine for the article to talk about COGS, but equating that finding with a profitability assumption without including the remaining "standard accounting practices", is a tad unrealistic…
Apple has a very high customer retention rate and thrives by selling new products to existing customers. They do that by making newer versions that are more attractive than the previous ones.
OK, I'll give you that, they do want to sell current customers new versions. However, competition from other manufacturers still plays a role in driving innovation. Look at Intel for example. They delayed releasing next generation chips because the competition from AMD was so far behind they didn't see the need to spend the money releasing new ones. Competition is good for consumers most of the time (Blu-Ray v. HD-DVD wasn't). Nobody is forcing you to buy a Nexus 7 and I'm willing to bet that a mini iPad will probably be a better overall experience than the Nexus 7 but having the Nexus on a store shelf does nothing to hurt regular consumers.
I think Google's strategy here is to build out a tablet user base and provide enough users to entice developers to write more tablet specific apps (one of the biggest complaints about the Android tablet ecosystem). By providing a reasonably high quality and very attractively priced tablet, they might convince non-tablet owners to buy one (I don't think they have a chance of getting any iPad converts). People have already suggested that Google is planning a stable of Nexus tablets so if this one is somewhat successful we may see a more direct challenge to the iPad. I don't think anyone expects any Nexus tablet to take over the lead that the iPad has but they may succeed in expanding their base considerably. Given that there are so many Android phones out there, people will want to remain in the same ecosystem and have their media files available across all of their devices.
Kinda stale and late as a strategy to bring to the table(t) now, no?
OK, I'll give you that, they do want to sell current customers new versions. However, competition from other manufacturers still plays a role in driving innovation. Look at Intel for example. They delayed releasing next generation chips because the competition from AMD was so far behind they didn't see the need to spend the money releasing new ones. Competition is good for consumers most of the time (Blu-Ray v. HD-DVD wasn't). Nobody is forcing you to buy a Nexus 7 and I'm willing to bet that a mini iPad will probably be a better overall experience than the Nexus 7 but having the Nexus on a store shelf does nothing to hurt regular consumers.
You still haven't established any evidence that Apple is driven by innovation - you have nothing but some inane rumors.
Even your final claim is incorrect. Competition CAN hurt consumers - at least in the short run. If Apple is forced to run around in circles and invest money in things that have no real value, that's time and money that could better have been spent on something else. Most of Apple's biggest innovations were not driven by competition, but rather by their relentless internal drive. Do you think the iPhone was based on making a better Blackberry than RIM, for example? Or maybe it's supposed to be a better Motorola Razr? It is often better to stop worrying about the competition and rather start with a clean sheet and figure out what the consumers need.
Again- I say this under the guise that I, too, think Apple will sell it for $249 or $299. But lets not pretend that Apple doesn't sell a device for around cost. iPod touches have consistently been for years ~$155 for parts just like this breakdown although the price was $229.. Now estimates on cost last year when they dropped the price, it dropped to around $142. And... holy crap- they sell for $199. Wow....
Apple, like anyone, likes to get a large market share hooked young and early. Why else would the shuffle still exist?
The shuffle isn't a "entry level device" desinged to sink Apple's teeth into your soul. It is simply a small, ultra portable mp3 player that has a robust market with people who are active, like at the gym, biking, running and so forth. There will always be a market for such a device.
Comments
That's nice. I hope you're happy with your Nexus 7.
Quote:
Originally Posted by Apple v. Samsung
So the difference between 8gb and 16gb is 6.50$
Apple why do you charge an extra 100$
Because enough people will pay it that the extra profit makes up for the lost sales, yielding a net increase in profit.
Or, in simpler terms, because they can.
Quote:
Originally Posted by tribalogical
I wonder why "cost analyses" are always limited to "Parts + Manufacture"… OK, throw in "fuzzy" mention of the inevitable but unknown R&D costs… but why do they always stop there, as if there are no other associated costs of bringing a product to market, and maintaining its presence there? These are not insignificant factors weighing on potential profitability.
Here are a few that leap to mind, in no particular order:
- Packaging (if not included in the "manufacturing cost" total)
- Warehousing, Distribution and Fulfillment. (probably outsourced, but still represents a substantial cost for volumes numbering in the millions)
- Marketing & PR.
- Customer Support. (Never insignificant for large-volume "computer" products)
- Warranty & Service processing, fulfillment and defective-product replacement. (Consider a 5% replacement/repair rate to be the high side of normal)
- All of the personnel and administrative costs of supporting the above list...
Just these can easily add quite a few $ per unit to the costs, depending on volume sell through. They are more like R&D costs in that they are "fuzzy" and unknowable… but they shouldn't be discounted in articles like these. For the "total cost of doing business" around a product, surely you could add another estimated 10% to the base cost without being too far off the mark…?
It is a standard accounting breakdown:
Definition of 'Cost Of Goods Sold - COGS'
The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales".
Investopedia explains 'Cost Of Goods Sold - COGS'
COGS is the costs that go into creating the products that a company sells; therefore, the only costs included in the measure are those that are directly tied to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded. The exact costs included in the COGS calculation will differ from one type of business to another. The cost of goods attributed to a company's products are expensed as the company sells these goods. There are several ways to calculate COGS but one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period then deducting the ending inventory. This calculation gives the total amount of inventory or, more specifically, the cost of this inventory, sold by the company during the period. Therefore, if a company starts with $10 million in inventory, makes $2 million in purchases and ends the period with $9 million in inventory, the company's cost of goods for the period would be $3 million ($10 million + $2 million - $9 million).
Read more: http://www.investopedia.com/terms/c/cogs.asp/#ixzz20Phx1CZD
The R&D for an iPad mini are largely the same as for the iPad maxi. And R&D costs dont increase per device sold - not for Apple - , those costs are sunk.
There are costs, but that is true about the iPod touch, our comparison model.
I didn't guess the retail price of the iPod touch which you got spectacularly wrong. Which largely invalidates the rest of your arguments.
And way to ignore the rest of my post. Firstly you ignored the big gaping mistake you made on the retail cost of the iPod touch. You were out by $30. You are also ignoring my main point - that the margins are for the line not the cheapest models and Apple deliberately keeps it's lower models - on the touch - with inadequate memory to entice consumers to gravitate to the next model. However they still have a cheap model in the game.
You are ignoring all this because the $199 iPod touch - which has a retina display and a A4 chip - disproves your theory. As for asking me for proper stats iSuppli's recent reports on the iPod touch are behind a firewall. Which means you know as much as me on that one, but less than most people on the actual retail cost of the iPod touch. Which largely should exclude you from any discussion on margins.
Ok it uses wholesale prices for other companies. We would have to assume that Apple is cheaper, particularly if it uses old components used in the old iPad 2 etc.
The screen size will be cheaper as it is not a retina display. The battery size will not be huge as it needs to power as small a number of pixels as the iPhone retina displays. The graphics card - the same. Only the CPU needs to be in any way "expensive" to compete with the Nexus - but they may not care on the specs of the CPU and just depend on the iPad selling on brand. It wont be the iPad 3 chip, possibly the iPad 2. This will allow for some Android fan boy crowing but what of it.
That would be overall margin across the entire line, rather than on one product. Apple can use higher margins on iPhones and top end iPads, and in the over all line of iPad minis to subsidise one measly model.
Again would be overall margin across the entire line, rather than on one product. Amazons total gross margins are 2%, if they can afford a loss leading hardware device to sell content, Apple can afford a loss leading model of one device which can be offset by prices elsewhere.
Your fallacy is that one low end model model which sells below cost, at cost, or low margins will destroy margins elsewhere. It wont
We do need to get recent figures on the iPod touch - selling for $199 not $229 - and on whether it is in profit using all your extra criteria on R&D etc. What we do know is the margins on the 8G model are much less than the margins on the 64G model, which is the exact same device with a few extra memory sticks probably costing Apple an extra 10-30$ max - the tear down in the article here says that google is paying $8 more for a 16G, or 2 8G sticks, than an 8G stick. The top end iPod touch sells for $200 more, and that is where the margins on the iPod touch line are made. Simply if the iPod touch is at cost at retail, the 64G is at 50% margins, and the mid range at 30%. If the iPod touch has 10% margins, the other margins increase sequentially. Thus Apple makes enough margins on the iPod touch line even if the cheap model is not getting the 25-40% margins of the overall line. And the cheap model comes with inadequate memory - 8G not 16 G - to encourage the purchasing higher models, after the customer has entered the store, or gone online. The jump to the middle level model is 28G memory.
Apple, if it follows this model, will look at the iPad mini line and say - across the whole line how can we make 30% - and put in the massive price differentials on memory alone to make the margins, while going cheap on a lower end model with underpar memory.
No price umbrella, as Tim Cook himself says.
What's your point?
First, your own link says "The exact costs included in the COGS calculation will differ from one type of business to another." In reality, COGS can be determined a number of different ways. As just one example, for industrial products that go through distributors, the distributor often gets a substantial commission - up to 20% of the selling price. That commission can be included in COGS if you choose to do so (at least under some circumstances), but most people don't. There is some flexibility. In fact, we had some products where the distributor commission was greater than our COGS (we didn't include commissions in COGS), so COGS could vary by over 100% depending on how you count it.
More importantly, it's really irrelevant. COGS does not determine if a product is profitable by itself. You also have to factor in the overheads. Simply:
Revenues - amount of money received from the customer
COGS - amount of money spent to manufacture or buy the product
Gross margin - Revenues minus COGS
Overheads - All costs attributed to the product that are not included in COGS. This would include indirect costs like management's time, R&D, advertising, marketing, and so on.
Net income (profit) - Gross margin minus overheads
So a product might have very high gross margins but still not be profitable. In the examples above, most of the costs that iSuppli leaves out are overhead costs - which are very real costs associated with the product even if they're not direct manufacturing costs. But iSuppli also leaves out a number of costs that ARE included in COGS so you can't even use their figures to calculate a gross margin. For example, the following costs are part of COGS but not counted by iSuppli:
- Shipping. While your source is correct that OUTBOUND shipping is generally not included in COGS, inbound shipping usually is. The cost of getting the item to your door is a real manufacturing cost attributed to the raw material
- Scrap
- Quality cost. Some quality costs can be attributed to the product and included in COGS. You would not typically include the cost of setting up a quality program, but you would typically include the cost of individual piece inspections
Even some indirect costs (R&D, support, etc) can sometimes be counted as COGS if you have a way to quantify them and calculate the amount that's attributable directly to the manufacture of the product. In the case of an iPad, for example, OS development would generally not be counted in COGS, but the cost of developing a new machining process (or Liquidmetal back) very well could be. It doesn't have to be, though - it might be preferable to capitalize it and amortize the cost over the life of the technology when that is allowed.
First, iSupply numbers are complete wrong. They have no clue what a company is paying for parts. I personally know the pricing of some parts and have seen iSupply reports and their pricing has never been right on it always too high or too low.
Case and point, 6 months ago Fire was loosing money for Amazon and today it is making them money, There is no way Amaizon would be able to take that much cost out of the product in that short amount of time and suppliers do not drop their pricing that much. Have you seen component suppliers loosing or showing decrease earning not happening. So where did all the money go that iSupply claims came out of the product. It is not happening, Isupply number are just completely wrong. So this analysis is completely worthless.
<strong>i think there is a argument for, when apple has no competition they produce better products</strong>
where was the competition when the iPad was released?...
where was the competition when the iPhone was released?...
where was the competition when the iPod was released?
where was the competition when the iMac was realeased?
where was the competition when the " iApple II" (LOL... bad pun, yes) was released? (in this case it was expensive and the commodore PET was cheaper, but the PET did not have color)
IMO saying that we need competition solely to provide CHEAP prices, is stupid!...
in order for something to be the same and cheaper, requires copying.
hence, cheap means the absence of originality. (the the only thing cheap/free that is original is university research)
Quote:
Originally Posted by tribalogical
I wonder why "cost analyses" are always limited to "Parts + Manufacture"… OK, throw in "fuzzy" mention of the inevitable but unknown R&D costs… but why do they always stop there, as if there are no other associated costs of bringing a product to market, and maintaining its presence there? These are not insignificant factors weighing on potential profitability.
Here are a few that leap to mind, in no particular order:
- Packaging (if not included in the "manufacturing cost" total)
- Warehousing, Distribution and Fulfillment. (probably outsourced, but still represents a substantial cost for volumes numbering in the millions)
- Marketing & PR.
- Customer Support. (Never insignificant for large-volume "computer" products)
- Warranty & Service processing, fulfillment and defective-product replacement. (Consider a 5% replacement/repair rate to be the high side of normal)
- All of the personnel and administrative costs of supporting the above list...
Just these can easily add quite a few $ per unit to the costs, depending on volume sell through. They are more like R&D costs in that they are "fuzzy" and unknowable… but they shouldn't be discounted in articles like these. For the "total cost of doing business" around a product, surely you could add another estimated 10% to the base cost without being too far off the mark…?
Those are mostly indirect costs that are tougher to estimate, and even if estimated, tougher to allocate to particular products of particular makers.
Quote:
Originally Posted by Techstalker
Douchebags like you are what give apple fans a bad name. From the New york times, engadget, the verge, CNET, Washington post, Allthings D, Mashable, CNN, Fox, NBC the list goes on and on, have said this tablet is not only good but its very good. The opinion on this tablet is that it is an absolute steal at the price point. I have not read one review that does not recommend getting this tablet.
Most reviews also agree this makes Kindle fire look like a joke. I have an ipad 2 and a Mac pro. But I also have a galaxy nexus, and a Samsung Windows 7 desktop. My favorite product out of all 3 is without a doubt my ipad 2 followed by my nexus. I just love technology. Pathetic attitudes like that, are makes outsiders without apple products think were all douchbags that walk around smelling our own farts.
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
You can complain all you want about Apple 'douchebags', but the ones who are really asinine are those who show up in an Apple forum to diss it. Tough, if they can't handle the pushback.
And, I am sure they appreciate your services in sticking up for them! Now, go play with your Nexus....
Quote:
Originally Posted by jragosta
You're still arguing contradictory points. On one hand, you're arguing that at least the base iPod Touch at $199 is sold at break even or very low margin. Then you argue that a 7-8" iPad Mini could be sold at $199 with some profit. Please explain how Apple could do that. If the iPod Touch is break even at $199 or very low margin, how do they sell a device with 4 times the screen size, much larger case, much larger battery, and much faster CPU for the same price and make a profit?
Very few manufacturing companies can survive on less than 20% margin. The general rule of thumb is that if a manufacturing margin is less than 30%, you have to think very hard about it or have a high volume/low overhead strategy to justify it.
But rather than generalizations, let's look at specifics. AMZN is not a manufacturing company in any real sense and manufactured products are only a small fraction of their revenues, so looking at their overall picture is going to underestimate their overheads (manufacturing adds overheads that don't have a major part in their current product lines - even if you outsource - things like quality, scrap, R&D etc). But in their most recent quarter, AMZN's overheads were 23% of revenues. So even if a new manufactured didn't have any costs for R&D, scrap, quality, support, etc, they'd need a gross margin of at least 23% just to break even. And since manufacturing DOES have added costs that don't appear in a pure distribution model (as represented by the 23% figure), they'd actually need greater than 23% gross margin just to break even on the product sale.
Again- I think the prices would be $249/$299- I can't reiterate that enough. But it is easily possible and reasonable chance they would have a $199.
First off, the iPod touch last year was a 28% GM ($144 cost $200 retail). And that was in 2011- so costs (of say memory, connectors, speakers, etc) have dropped from there. Second, a non-retina would be cheaper even though it is larger. Third, the case and battery will be more. The CPU will be the same comparably cost-wise as the A4 was last year for the iPod touch. So its not substantially more if at all. And if they sold the 8gb for $199, and a 32gb for $299, the 32gb model would easily make a large chunk of profit. If Apple makes a $249 model- it will be 16gb, not 8gb- no way they do half the storage of their competitors for more $.
Lastly, why do you keep putting words in my mouth. Never once did I say that an iPod Touch is sold at break even. It's clearly not. $144 doesn't equal $199 in the world I live in.
And please spare me with your knowledge of everything in the world, particularly gross margins. I deal with those numbers daily. 14 hours ago, you thought the iPod Touch was $229- and now you're an expert on the subject matter? Seriously examine yourself one day- you are a know-it-all... except you don't know-it-all.
I think Google's strategy here is to build out a tablet user base and provide enough users to entice developers to write more tablet specific apps (one of the biggest complaints about the Android tablet ecosystem). By providing a reasonably high quality and very attractively priced tablet, they might convince non-tablet owners to buy one (I don't think they have a chance of getting any iPad converts). People have already suggested that Google is planning a stable of Nexus tablets so if this one is somewhat successful we may see a more direct challenge to the iPad. I don't think anyone expects any Nexus tablet to take over the lead that the iPad has but they may succeed in expanding their base considerably. Given that there are so many Android phones out there, people will want to remain in the same ecosystem and have their media files available across all of their devices.
Quote:
Originally Posted by Techstalker
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
Well said! Fanboys forget that competition between companies drives them to innovate and release increasingly impressive products. We'd all be stuck using a 2.5G iPhone if nobody had challenged Apple.
Quote:
Originally Posted by Techstalker
I plan on getting one, I can't pass up that price point with those amazing reviews. Take my money google. Im on board. Just like if the iphone 5 amazes me ill be dumping my nexus. I hate pathetic fanboys. Glad I'm not one.
Well said! Fanboys often forget that competition between companies is what drives them to innovate and release increasingly impressive products for us to use. We'd all be stuck using 2.5G iPhones from 2007 if nobody had challenged Apple.
This is, of course, nonsense.
Apple has a very high customer retention rate and thrives by selling new products to existing customers. They do that by making newer versions that are more attractive than the previous ones.
Quote:
Originally Posted by JerrySwitched26
It is a standard accounting breakdown:
Definition of 'Cost Of Goods Sold - COGS'
The direct costs attributable to the production of the goods sold by a company. This amount includes the cost of the materials used in creating the good along with the direct labor costs used to produce the good. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales".
Investopedia explains 'Cost Of Goods Sold - COGS'
COGS is the costs that go into creating the products that a company sells; therefore, the only costs included in the measure are those that are directly tied to the production of the products. For example, the COGS for an automaker would include the material costs for the parts that go into making the car along with the labor costs used to put the car together. The cost of sending the cars to dealerships and the cost of the labor used to sell the car would be excluded. The exact costs included in the COGS calculation will differ from one type of business to another. The cost of goods attributed to a company's products are expensed as the company sells these goods. There are several ways to calculate COGS but one of the more basic ways is to start with the beginning inventory for the period and add the total amount of purchases made during the period then deducting the ending inventory. This calculation gives the total amount of inventory or, more specifically, the cost of this inventory, sold by the company during the period. Therefore, if a company starts with $10 million in inventory, makes $2 million in purchases and ends the period with $9 million in inventory, the company's cost of goods for the period would be $3 million ($10 million + $2 million - $9 million).
Read more: http://www.investopedia.com/terms/c/cogs.asp/#ixzz20Phx1CZD
Great references and links, thank you.
And you might not guess it by my post, but I actually understand a great deal about COGS… (admittedly not *everything*, as I'm not an MBA… but I also assume most people don't, and so try not to get too technical in forum posts…)
The problem happens for me when they start to directly assign profitability potential based on these costs alone. Unless we're saying that their profit is based on Gross Margin alone… which it isn't. Operating costs and indirect expenses also matter when we're talking about something being profitable. At the end of the day, will the Nexus 7 be a "profitable product" for them? I'd say they're skirting right on the edge of that… it could bring a trickle of revenue, or remove a bit from their overall profits.
Will it hurt Google to do this? Certainly not…..
Anyway, my point here is, it's fine for the article to talk about COGS, but equating that finding with a profitability assumption without including the remaining "standard accounting practices", is a tad unrealistic…
I'm open to being corrected, by the way
Quote:
Originally Posted by jragosta
This is, of course, nonsense.
Apple has a very high customer retention rate and thrives by selling new products to existing customers. They do that by making newer versions that are more attractive than the previous ones.
OK, I'll give you that, they do want to sell current customers new versions. However, competition from other manufacturers still plays a role in driving innovation. Look at Intel for example. They delayed releasing next generation chips because the competition from AMD was so far behind they didn't see the need to spend the money releasing new ones. Competition is good for consumers most of the time (Blu-Ray v. HD-DVD wasn't). Nobody is forcing you to buy a Nexus 7 and I'm willing to bet that a mini iPad will probably be a better overall experience than the Nexus 7 but having the Nexus on a store shelf does nothing to hurt regular consumers.
Quote:
Originally Posted by lubernabei
I think Google's strategy here is to build out a tablet user base and provide enough users to entice developers to write more tablet specific apps (one of the biggest complaints about the Android tablet ecosystem). By providing a reasonably high quality and very attractively priced tablet, they might convince non-tablet owners to buy one (I don't think they have a chance of getting any iPad converts). People have already suggested that Google is planning a stable of Nexus tablets so if this one is somewhat successful we may see a more direct challenge to the iPad. I don't think anyone expects any Nexus tablet to take over the lead that the iPad has but they may succeed in expanding their base considerably. Given that there are so many Android phones out there, people will want to remain in the same ecosystem and have their media files available across all of their devices.
Kinda stale and late as a strategy to bring to the table(t) now, no?
On the topic of "Apple killers," see this news item on ultra books: http://bits.blogs.nytimes.com/2012/07/11/some-ultra-disappointments-for-computer-makers/?hpw
Laughable.
You still haven't established any evidence that Apple is driven by innovation - you have nothing but some inane rumors.
Even your final claim is incorrect. Competition CAN hurt consumers - at least in the short run. If Apple is forced to run around in circles and invest money in things that have no real value, that's time and money that could better have been spent on something else. Most of Apple's biggest innovations were not driven by competition, but rather by their relentless internal drive. Do you think the iPhone was based on making a better Blackberry than RIM, for example? Or maybe it's supposed to be a better Motorola Razr? It is often better to stop worrying about the competition and rather start with a clean sheet and figure out what the consumers need.
Quote:
Originally Posted by Andysol
Again- I say this under the guise that I, too, think Apple will sell it for $249 or $299. But lets not pretend that Apple doesn't sell a device for around cost. iPod touches have consistently been for years ~$155 for parts just like this breakdown although the price was $229.. Now estimates on cost last year when they dropped the price, it dropped to around $142. And... holy crap- they sell for $199. Wow....
Apple, like anyone, likes to get a large market share hooked young and early. Why else would the shuffle still exist?
The shuffle isn't a "entry level device" desinged to sink Apple's teeth into your soul. It is simply a small, ultra portable mp3 player that has a robust market with people who are active, like at the gym, biking, running and so forth. There will always be a market for such a device.