SAN JOSE, Calif. Apple Computer Inc. tipped over the "apple cart" with its new iPod Shuffle digital audio player, by moving away from some of its longtime semiconductor suppliers in the product, according to International Data Corp. (IDC).
In a teardown analysis, IDC discovered that the iPod Shuffle uses SigmaTel Inc.'s MP3 decoder, which supplants chips from PortalPlayer Inc., Texas Instruments Inc. and Wolfson Microelectronics plc. In addition, the most expensive device in the iPold Shuffle is a NAND-based, flash-memory chip supplied by South Korea's Samsung Electronics Co. Ltd. according to IDC (Framingham, Mass.).
Toshiba Corp. has also garnered a design win for its flash-memory devices within the unit, according to another analyst.
Last month, Appled rolled out the iPod Shuffle, its first flash-based digital audio player. The product comes in 512-MB and 1-GB configurations and sells for $99 and $149, respectively.
The total bill-of-material (BOM) costs in the iPod Shuffle is more than $59 on the 512-MB version, giving "Apple a 40 percent margin on a retail price of $99 and a margin of 35 percent on the 1-GB model," said IdaRose Sylvester, senior analyst with market researcher IDC.
The computer maker also sells iPod products with hard drives. In total, more than 36 million flash-based digital audio players will ship in 2005, Sylvester said.
In the iPod Shuffle, the unit features a two-board design. The product makes use of chips from Samsung and SigmaTel, but it also has approximately 150 capacitors, resistors and inductors.
The most expensive chip is a NAND-based, 1-GB flash-memory device (512-Mbit x 8) from Samsung. The flash-memory chip makes up $37.50 of the BOM costs in the unit. Total BOM costs in the iPod Shuffle is $59.38, according to IDC.
Flash-memory prices should drop, thereby boosting Apple's margins. "The same flash memory costs $31.25 in Q105, bringing Apple's margins to a very healthy 46 percent in 2Q05-Q305 on the 512-MB unit and 43 percent on the 1-GB model," Sylvester said.
Meanwhile, Toshiba has also made inroads in the system. "Coincidentally, we have also pulled apart the 512-MB Shuffle, and we found that Apple had used a Toshiba NAND-flash memory in the one we bought," said Dick James, senior technology analyst at Chipworks Inc. (Ottawa), a Canadian semiconductor engineering services company.
"The Toshiba part actually uses 2 x 2-GB chips (512-Mbit x 8 ) in the one package, made in the Toshiba/Sandisk 90-nm process," James said.
Apple is apparently using a second-source amid demand for the Shuffle. "Apple is already second-sourcing," he said. "Given that the Shuffle was only launched seven weeks ago, it seems unlikely that they've switched suppliers already. I would think that they are dual sourcing because of the expected demand for the product."
Perhaps the biggest surprise in the teardown analysis is the MP3 decoder, which is supplied by SigmaTel. "The MP3 decoder is a highly integrated SigmaTel design, which takes the place of the PortalPlayer audio decoder, plus the Wolfson digital-to-analog converter (DAC) and Texas Instruments' DC-DC converter still found in iPold hard disk drive (HDD) units," IDC's Sylvester said.
Respective chips from PortalPlayer, TI, and Wolfson are still apparently used in Apple's hard-disk-based iPods, it was noted.
The SigmaTel part supports MP3 and WMA, according to IDC. The chip includes a digital-audio-converter, DC-to-DC converter, a USB 2.0 converter, SDRAM and headphone driver amplifier. It also has a built-in audio-digital-converter for voice recording, LCD drivers and an FM tuner interface, according to IDC.
"The highly-integrated SigmaTel design suffers from the irony of needing several external components to support it," Sylvester said. The BOM of the SigmaTel device is $7.49. It also makes use of a lithium-ion battery, which has a BOM cost of $4.50.
"At first, I was surprised to see the SigmaTel design in there, given the PortalPlayer monopoly in the HDD units," the analyst said. "However, PortalPlayer doesn't have an announced flash solution, so it's not really a big surprise."
There is good and bad news for all component suppliers to the iPod. "Of course, for component suppliers, there is much upside to be gained in being a supplier to Apple, especially if Apple turns to you repeatedly on different models, as it has with Samsung and PortalPlayer, among others," she said.
"On the other hand, it is a challenging business," she said. "If you do not provide enough product at the right time, Apple will second source. Apple will dictate pricing and terms to you, and will readily, as we now are hearing, go elsewhere to find less expensive solutions. Supplying to the iPod is both potentially very rewarding and tremendously tricky."