iPod video tear-down suggests high Apple margins (images)

Posted:
in iPod + iTunes + AppleTV edited January 2014
A tear-down of Apple Computer's newly refreshed video iPod reveals potentially high margins for the company and confirms that both PortalPlayer and Broadcom have retained their respective sockets inside the device.



Craig Berger, an analyst at Wedbush Morgan Securities who covers PortalPlayer, had predicted that the iPod chip maker would retain its slot in the device and ripped one open just to be sure.



"We do see both the PortalPlayer MP3 processor and the Broadcom video processor chip inside this device, consistent with our prior expectations that this device would remain a discreet two-chip solution for the time being," he told clients in a research note on Thursday.



Berger said Apple made very few hardware changes over its fifth-generation iPod with video playback, but did update the player's power management chips "The lack of hardware changes implies that this device is a short-term, stop-gap device intended to buy Apple more time until it is ready to launch its true iPod Video later this year or early next year," he said.



Given the lack of hardware changes, the analyst believes Apple is still working on launching its 'true' video iPod late this year or early next year. "In the forthcoming 'true' video iPod, PortalPlayer and Broadcom could maintain their supplier status," he said, "or recent speculation that nVidia (or Samsung) will be the processor supplier could prove true."



Of interest to Apple investors, Berger's tear-down analysis implies that the company's gross margins could be between 45 and 50 percent on the refreshed iPod video devices given continuing hard disk drive price declines.



"Apple should see strong gross margins on these devices in the mid-40 percent range, per our [bill-of-material] cost estimates," he wrote in his note. "Apple is not scaling the capacity of the iPods that fast, and with the hard drives used in the iPods getting cheaper as time goes on, Apple can lower the price point on its 30GB iPod while still maintaining gross margins."







Berger estimates that Toshiba hard disk drives account for approximately 46 percent and 61 percent of Apple's materials cost for the 30GB ($60) and 80GB ($110) model, respectively. Other costly components standard amongst both models are said to include a $9.00 2.5-inch color LCD screen, a $6.00 Li-ion battery, $5.80 PortalPlayer SoC, $8.50 Broadcom video decoder, $3.00 Wolfson audio codec, $2.50 Click-Wheel and $9.00 aluminum case and connector kit.



The analyst estimates the total bill-of-materials cost for the $249 30GB model to be just $130.90, which would represent a 47.4 percent margin before freight, marketing and other costs. Similarly, he estimates materials for the $349 80GB model cost just $180.90, yielding margins of approximately 48.2 percent.



Click for larger image



In his tear-down, Berger also lists Infineon as a supplier of 256Mbit SDRAM ($1.20), Linear Technology proving a USB power manager and Li-ion charger ($1.50), National Semiconductor lending at high voltage step down switching regulator ($0.70) and Cypress contributing a Click-Wheel PSoC mixed signal controller ($0.90).



Philips and Silicon Storage Technology also continue to play small roles in the video iPod, according to the tear-down.
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Comments

  • Reply 1 of 36
    first comment!



    130 to make the 30 GB.....I bet when you factor in overhead expenses (employee wages, marketing, R&D) then it brings it up close to 200....



    Even still, apple is making some good profits off those ipods.
  • Reply 2 of 36
    jeffdmjeffdm Posts: 12,951member
    It's not too surprising, though I can imagine the shock and disdain from those that see this but don't understand the business. There are many expenses that are simply not covered in that type of analysis because that's not the focus.



    I thought the tear-downs of previous generation units had about the same GPM, though I thought it was closer to 50%, but that's a few dollars difference at most.
  • Reply 3 of 36
    "Third post!"



    Anyway, the rumours of a possible 6ht generation iPod continue to be alive. Thruth be told, I keep putting off buying my 1st iPod because of this. I'm happy (in the mean time) with my first generation nano.
  • Reply 4 of 36
    Well... the hardware isn't any different. Now where's that 5.5G search function in the 5G?
  • Reply 5 of 36
    Quote:
    Originally Posted by WhetWurm


    Well... the hardware isn't any different. Now where's that 5.5G search function in the 5G?



    doesnt have one, which realy annoyed me. those bastards.......
  • Reply 6 of 36
    It could be a "stopgap," OR, the "true video iPod" could be a high-end model in ADDITION to the music iPods.
  • Reply 7 of 36
    mr. hmr. h Posts: 4,870member
    Quote:
    Originally Posted by nagromme


    the "true video iPod" could be a high-end model in ADDITION to the music iPods.



    It better be, because if you think you can get a widescreen LCD into a package the same size as the current HDD iPod and maintain battery life, you are dreaming. Apple shouldn't compromise on the HDD iPod's primary function of being the best possible portable music player.
  • Reply 8 of 36
    eckingecking Posts: 1,588member
    I think the true video ipod will be a new model atop the current one. There's still a market for a full size ipod for music.



    They've been very careful to call it ipod with video.
  • Reply 9 of 36
    Quote:
    Originally Posted by nufase


    first comment!



    130 to make the 30 GB.....I bet when you factor in overhead expenses (employee wages, marketing, R&D) then it brings it up close to 200....



    Even still, apple is making some good profits off those ipods.



    I beg to differ... with wage costs, remember were talking Chinese labot here. Not particularly pricey. I believe I saw per unit costs for some devices close to less than $3. As for marketing and R&D well, those are amortized over volume so the only real additional might be freight.



    $200 IMHO is unlikely. Apple'd be selling them for $299 still if that was the case. The price drop is not "defensive", it is merely a deferral to the overall commodification of the components contained within the device.
  • Reply 10 of 36
    Quote:
    Originally Posted by ecking


    I think the true video ipod will be a new model atop the current one. There's still a market for a full size ipod for music.



    They've been very careful to call it ipod with video.



    a separate video ipod would also make sense from a size standpoint - people wanting to watch movies would be willing to lug around a slightly larger ipod if it meant having a bigger screen.



    Still, that would make for a very broad product line - shuffle, nano, ipod, vpod. it could be a good thing, though - some people would probably by a vpod as well as a shuffle or a nano - one for the gym and one for everything else.
  • Reply 11 of 36
    I would call it iPod cinema
  • Reply 12 of 36
    melgrossmelgross Posts: 33,510member
    Quote:
    Originally Posted by unother


    I beg to differ... with wage costs, remember were talking Chinese labot here. Not particularly pricey. I believe I saw per unit costs for some devices close to less than $3. As for marketing and R&D well, those are amortized over volume so the only real additional might be freight.



    $200 IMHO is unlikely. Apple'd be selling them for $299 still if that was the case. The price drop is not "defensive", it is merely a deferral to the overall commodification of the components contained within the device.



    I disagree with that. Costs are more than just what you think to be the "labor" involved in the manufacturing line. Even if your number was correct, it would be just a small part of the overall expense.



    You are forgetting about, packaging, shipping, handling, warranty costs, distribution which includes distributor expense and profit, retail expense and profit, advertising, etc.



    If Apple makes more than 10-12% profit on these, I would be surprised.
  • Reply 13 of 36
    Quote:
    Originally Posted by mbaynham


    doesnt have one, which realy annoyed me. those bastards.......



    Totaly agree!
  • Reply 14 of 36
    Quote:
    Originally Posted by melgross


    I disagree with that. Costs are more than just what you think to be the "labor" involved in the manufacturing line. Even if your number was correct, it would be just a small part of the overall expense.



    You are forgetting about, packaging, shipping, handling, warranty costs, distribution which includes distributor expense and profit, retail expense and profit, advertising, etc.



    If Apple makes more than 10-12% profit on these, I would be surprised.



    Probably more like 18-20% but defining "profit" is a bit arbitrary.



    These speculations always make me think how much less sensible costs are distributed for basic needs like bread. Think of the raw material costs and the final price and how much goes to the farmer.
  • Reply 15 of 36
    There are a number of other costs. They employ Fedex/UPS supply chain services: shipping directly from China to retail/direct to customer is going to be costly even though they are likely to receive a significant discount. Then there are the costs related to R&D, production, marketing, transportation, logistics, support, sales commissions, and just-in-time manufacturing, and finally overhead. My guess is that when all the value-added services are considered, they're looking at $180 when all fixed costs are considered, and so a $70 contribution margin (profit) by this reasoning.
  • Reply 16 of 36
    melgrossmelgross Posts: 33,510member
    Quote:
    Originally Posted by MacGregor


    Probably more like 18-20% but defining "profit" is a bit arbitrary.



    These speculations always make me think how much less sensible costs are distributed for basic needs like bread. Think of the raw material costs and the final price and how much goes to the farmer.



    No. There are gross margins, and then there is profit.



    The gross margins on iPods have averaged around 20%, but the actual profits, after all costs are accounted for, is closer to 10%.



    It's not arbitrary at all. It's very well defined.



    Talking about farmers is not the point. Talk about all of the other costs in the chain. How about the guy's that make the dough, or the bread?
  • Reply 17 of 36
    um, little off subject but someone said that if the 'proper' video ipod did have wireless capabilities it would have to be done properly. just had a little think about this, i remembered about the ichat theater in leopard, and playing of photo slide shows through it. now that on an ipod would be cool. well, at least for a little while.
  • Reply 18 of 36
    melgrossmelgross Posts: 33,510member
    One problem is the licensing from the media suppliers. THEY have to allow this.



    I'm sure that MS would have wanted to allow unlimited sharing, but couldn't.



    The same reason why we have DRM in the first place.



    In fact, this is why MS had to limit ALL music sharing to a three play, or three day limit, whichever came first. This applies even if you have your own band's music in the player. It can't distinguish between legitimately downloaded non DRM'd MP3's (or other formats), ripped CD's, and home recorded stuff. so it limits ALL of it.



    There is no reason to believe, at this time, that Apple could do better.
  • Reply 19 of 36
    Quote:
    Originally Posted by melgross


    No. There are gross margins, and then there is profit.



    The gross margins on iPods have averaged around 20%, but the actual profits, after all costs are accounted for, is closer to 10%.



    It's not arbitrary at all. It's very well defined.



    Talking about farmers is not the point. Talk about all of the other costs in the chain. How about the guy's that make the dough, or the bread?



    You are correct, my use of "arbitrary" is in reference to what people think of the term "profit" not what I know the actual definition of "profit" is. But thanks for the correction.



    And I know the cost of wheat, growing wheat, baking bread and selling bread. It is 80% wages, 10% overhead at each facility, 8% fuel costs and 2% ingredients costs. Profits are also taken on top of this and this is where there is a lot of variability.
  • Reply 20 of 36
    melgrossmelgross Posts: 33,510member
    Quote:
    Originally Posted by MacGregor


    You are correct, my use of "arbitrary" is in reference to what people think of the term "profit" not what I know the actual definition of "profit" is. But thanks for the correction.



    And I know the cost of wheat, growing wheat, baking bread and selling bread. It is 80% wages, 10% overhead at each facility, 8% fuel costs and 2% ingredients costs. Profits are also taken on top of this and this is where there is a lot of variability.



    According to Marx, it's 100% labor. It's the only thing that I can agree with him about.
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