With the iPad mini, Apple's first 7-inch tablet, Apple continues to garner even greater profits from sales of the higher-end tablet models that have greater amounts of flash memory, IHS said. Because Apple provides consumers no option to expand the iPad mini’s storage capacity with any sort of removable memory card, the only way users can upgrade the amount of flash available on the product is to buy the higher-end 32-gbyte and 64-gbyte models.
Those models—priced at $429 and $529, respectively—bring Apple even greater return because the cost to Apple of adding the additional NAND is only about $9.60 in the case of the 32-gbyte version and $19.20 in the case of the the 64-gbyte version, IHS said.
"With the iPad mini, Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products," Rassweiler said Apple continues to make healthy margins on its hardware, while Amazon and Google—with its 7-inch Nexus 7 tablet, also priced at $199—are banking on getting tablet owners to buy content from them.
The defining feature of the iPad mini is its 7.9-inch display, larger than comparable 7.x-inch tablet.. The iPad mini employs GF2 multi-touch touchscreen technology, which allows the touchscreen module to be thinner than competing tablets, IHS said. However, the new GF2 technology also makes manufacturing more challenging during initial production by reducing manufacturing yields, IHS said.
But this drives up pricing for the touchscreen module. A preliminary estimate on the initial cost of the display and touchscreen module is about $80, IHS said, representing a hefty 43 percent of the total BOM for the low-end iPad mini.
With the high price of the display module, Apple needed to reduce expenses in other sections of the iPad mini, IHS said. The most notable example of cost cutting is in the processor—an A5 chip manufactured on 32-nm process technology—which has been used previously on other products and costs just $13, roughly 4 percent of the BoM, IHS said. By contrast, the Texas Instruments OMAP processor used in Amazon’s Kindle Fire HD costs $16.50, IHS said.
"The use of the A5 is a great example of Apple leveraging a common component in as many devices as possible in order to increase purchasing volumes and keep costs to a minimum," Rassweiler said.