Report: $499 iPad Costs Apple $230 to Make, Bring on the Discounts!

ipad insides

iSuppli has again done its trick of totaling a device's component costs to show the kind of profits the maker can get. This time, it's the fabled iPad...and iSuppli's data implies there's room for Apple to maneuver on sales price.

iSuppli reckons that the most expensive part of the device will be its screen, which tallies with the unusual IPS display tech, and the emphasis Apple itself put on the screen quality. Here's what it and other key components likely cost Apple:

  • The screen: $80 per unit. It's probably from LG, and its cost is about five times as much as the iPhone 3GS's display costs.
  • 16GB of flash-RAM: $29.50 for bottom-end machines, 64GB: $118 for top-end units. 
  • Apple's own A4 system-on-a-chip: $17. According to iSuppli, it's the most interesting component, acting as the processing/graphics core of the machine but costing Apple just $2-ish more than the iPhone 3GS's CPU. It illustrates the kind of saving that can be achieved by bringing part of a chip's design in-house.

Add in the cost of assembly, other electronic components, buttons, cases and other bits and bobs and the entry-level 16GB Wi-fi-only iPad costs $229.35 to make. This is the least profitable model for Apple, amounting to some 46% or the retail price of $499. The most profitable unit is the 3G-equipped 32GB model, which iSuppli calculates as costing just 39% of the retail price.

What's all this mean? For a start, the apparently huge margin between the assembly price and the retail price shouldn't be a surprise. Apple's business model tends to avoid the common practice of selling some units as loss-leaders, and the real cost to Apple for each iPad will be higher once you factor in marketing, wages, research and development, and a thousand other costs that get shared out between every unit sold.

But, even having said that, there's significant room for maneuver on the price of the iPad--even at its entry-level $500. I've already noted that this figure is a fabulous win for Apple right from the start, placing the iPad as a seriously disruptive influence in the e-reader, netbook and even low-end notebook markets. But Apple's not dumb, and clearly it's learned from past mistakes: The game-changing iPhone cost an exorbitant $600 for an 8GB model. And within just a few months Apple had to slash it down to $400 to drive sales upwards. Of course the iPad is a different, larger and more expensive beast and Apple seems to have got its pricing right, but that doesn't mean Apple won't be agile with those prices again if it deems it necessary. And with numerous competitors on the way, the rumored Asus EEEPad on the horizon, and the updated Kindle 3 in the medium-distant future, Apple may well chose to drop the price on, or some time shortly after, launch in order to sew up as much of the market as it can.

[Via BusinessWeek]

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6 Comments

  • Travis Andren

    In product development, there is a general common rule of 4. That is whatever price you pay on the shelf, the cost to manufacture can be estimated at 1/4th of that price. The other 3/4s are devoted to transporting, packaging, marketing, legal fees, operational costs, and of course a goal of about 1/4 profit. So if iSuppli is correct, Mac is hardling making anything on it. I agree with David Carnevale, it's all about press coverage.

  • Kit Eaton

    @David Well I did say isuppli "reckons"--of course nobody has one to tear apart yet. That would've been my first choice for a pic at the top! And from history, isuppli tends to be pretty accurate, since they're more in a position to know than almost anyone apart from Apple.
    @Filipe. I pointed that out too.
    @Tyler. True--but I seriously doubt many DVD players use IPS display tech: it really isn't the norm.

  • Tyler Starke

    I think the first part of the year has been just total bum for technology. When I heard the iPad can't multi-task (seriously, has that not been changed yet?) I thought it would be a total flop except with Apple fan-boys and fan-girls.

    Who in their right mind would pay $500 for watered down tablet? It sounds like a flop that is going to be buoyed by consumers and their wish for 'hopey-changey'.

    -On Topic Now. I have to argue the cost of the screen. Negroponte (OLPC) was talking about the XO2 and stating how the DVD Player market plays a factor in the cost of screens. If Apple made the same bet then it is likely they bought screens for a fraction of the cost.

  • Andre Straker

    @David Carnevale

    Bottom line is that there is nothing special about the iPad design. Such gadget designs has been done by many hardware engineers in many companies. The major costs are as indicated. Making the board is pretty much standard, as well as the case etc..

    iSuppli is probably within the ball park.

    However discounts will depend on Apple. They may take healthy margins on the hardware, or do like MS and Sony with the Xobx and Playstation, respectively. They take a hit on the hardware and make up on the royalties etc..

    Apple makes enough margins from the App store and iTunes, not to mention upcoming sale of books, to reduce the price further.

    Apple has their own distribution chain, giving them even further control over price. They can sqeeze 3rd party sellers, who would not want to carry Apple's products... other than Microsoft and the like.

  • Filipe Frota

    Ok.. so what if it costs 229usd to make? There are a bunch of other distribution and retail costs untill it reaches consumer's hands.

  • David Carnevale

    Your article implies that iSuppli actually tore down an iPad. They did not because they don't have one! Estimating the production cost of a product without ever seeing it is poor analysis at best. The gross margin percentage is suspiciously close to 55% which is fairly typical of previous Apple product teardown estimates. Just another grab for press coverage ... which they got

    --
    HiTech Marketing Guy