Estimates peg HomePod build cost at $216, Apple's margin smaller than competitors
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."
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."
Comments
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.
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.
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.
It’s not the number is righ or wrong. It’s the narrative is always wrong.
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.
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.