SAN JOSE, Calif. – Apple will cut into its profit margins--but only slightly--with its latest iPad and discounts on the iPad 2, according to estimates from UBM TechInsights.
The new iPad announced yesterday will have an estimated bill of materials cost of $310, up from $270.86 on the original iPad and $276.27 on the iPad 2 based on versions at launch using 16 Gbytes memory. By selling all three at the same $629 price, Apple is cutting its profit margins about five points from 56-57 percent on the first two generation products to 51 percent on the new iPad, UBM TechInsights projected.
Apple’s profit margin on the iPad 2 will dip to an estimated 53 percent when it is discounted to $529 at the release of the new model. The iPad 2 sustains less of a hit because prices of its components are projected to have come down since its launch last year resulting in a current bill of materials cost of $248.07 for the 2012 version of the iPad 2, it said.
Most of the new iPad’s higher costs are split fairly equally between four major components. The new higher resolution display is expected to cost about $12 more, the new A5X processor adds about $8 and the LTE modem and expanded battery add about $7 each to the new iPad’s cost, UBM TechInsights estimated.
The analyst firm cautioned that its estimates are projections that it will further refine once the tablet is available for a full teardown inspection. UBM TechInsights is part of UBM LLC, the company that publishes EE Times.
“The bottom line is the new iPad’s margin should take a little hit because of some expensive adders like LTE, the high-res display and camera, a bigger battery and faster processor,” said Jeff Brown, a senior UBM TechInsights analyst. Apple “will hope to offset that margin decrease with a slightly higher margin on the iPad 2,” he said.
Apple “also may make up some extra margin by negotiating some higher cuts of the service plans,” with carriers he added.
Separately IHS iSuppli estimated Apple will nearly double its spending on displays in 2012. The higher volumes may help the company negotiate lower component costs, further improving margins.
Profits also could be higher on models sporting more memory, said Brown.
Despite the shaved margins, Apple appears to be in the cat bird’s seat, selling a premium product. Prices for Android tablets dipped last year in the wake of the release of the low cost Amazon Kindle Fire, according to IHS iSuppli.
Of course, the laymen aren't engineers.
When it comes to a device like the iPad, the layman really doesn't care much for horsepower above what it takes to watch video, play games, surf and e-mail.
if it delivers all that simply and effectively, it adds value well beyond the sum of the parts.
That is the beauty of the iPad.
I am astounded that the parts used in an iPad cost this much. I expected Apple to be making margins of 70% upwards on their iPad and iPhone products.
If these figures are accurate, maybe Apple isn't so mean and evil after all - I thought their products were just over-priced to carve a niche of "luxury" tech products for themselves in the market.
I have costed a few consumer-volume electronic products, although nowhere near Apple's volumes.
The gross margins achievable (end-user selling price less unit build cost) were frankly astounding, 90-95%, but the distribution chain's margins and product-specific cost of sales left precious little as a contribution from each unit sale.
All these little slices have then to cover the cost of getting the show on the road and keeping it there, and I guess Apple (of all companies) has a significant spend on management, marketing, R&D, legal and liability insurance over and above a regular high-tech company's running costs.
Basically every penny counts and I guess Apple's vertically integrated sales channel is an important part of that.
Even that has been changing. You can bet supermarkets get a decent margin for selling Apple, or they certainly wouldn't bother.
I seriously doubt Apple do any hoarding.
If anything, Apple has supply issues which is why they keep buying up supply companies.
If anyone does the hoarding Apple would force that onto the supplier.
The actual costs are completely secret. Even those working pretty close to the product design typically don't know what the costs are. They certainly are not what the industry thinks.
The new iPad is likely to be my 'computer' when I go on vacations. I bought a keyboard with it and it can do almost everything I need to do. And although Apple is earning a small amount less per iPad sold, they have their best sales yet! http://detectapple.com/ipad-demand-of-the-charts-according-to-apple/
On above comment, the margins are not five percent, but five percent less than the current margins. Everyone needs to make money otherwise sit on the beach and collect interest from a bank.
The iPad is excellent for reading the news. The deployment model for automation where there are many different users and they would have to download from iTunes while you wait for Apple to approve you app is unattractive. I also would prefer to see lower margins (say five percent) and know people assembling them are better looked after. The price differential between then iPad and MacBookAir is not that much for people wanting to do something useful, but cannot deny it is a brilliant product. I still have an iPad 1, and don't see the need to move up. (Also server, laptop etc, but too much hype for what you can really do with it for the price).
The costing of a product is a confidential element for a company. Is it possible to calculate the prices like this upto 0.01% granularity by estimating the prices being totally outside the company?
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