News & Analysis
New iPad may shave Apple’s tablet margins
Rick Merritt
3/8/2012 7:27 PM EST
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.
Click on image to enlarge.
Click on image to enlarge.
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.
Click on image to enlarge.
Click on image to enlarge.
|
|
|
|
|
Navigate to related information
agk
3/9/2012 12:46 AM EST
This happens every year in all the models in all the companies when the technology advances.This is the real growth in the industry.this takes place means there is additional new jobs created in the whole supply assembly chain and few older jobs are cut.
Sign in to Reply
Helicopter
3/9/2012 1:29 AM EST
does this ipad match laptop horsepower now?
for the rich and savvy, im sure this is another dispensible item with marginal value over the ipad2. wonder if a layman can make economic sense out of this machine. Will he buy a laptop instead?
Sign in to Reply
KB3001
3/9/2012 4:41 AM EST
Probably not there yet but it is going that way.
Sign in to Reply
Kallen Consulting
3/14/2012 9:09 AM EDT
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.
Sign in to Reply
t.alex
3/9/2012 10:39 AM EST
As usual the new product will kill off the old products instead of making stark differences from the old ones.
Sign in to Reply
ScottenJ
3/9/2012 12:20 PM EST
I don’t understand how people think an iPad is a computer replacement. I have to constantly connect my iPad to my computer to move things on and off the iPad with iTunes and even configuring which aps are on different screens requires a computer. The lack of a user accessible file system really limits what you can do from the iPad. The office kind of aps for iPads are very limited in terms of the complexity of things like spreadsheets that they can deal with. If you could completely configure the iPad from on the iPad, store greater tahn 250Gb of data and had a native file system maybe it would approach stand-alone usability but it is nowhere near there yet. And don’t even get me started on iOS5 and what a disaster it is for those of us who have iPad 1s.
Sign in to Reply
Frank Eory
3/9/2012 5:00 PM EST
I fully agree that the iPad is not a suitable replacement for a PC or laptop. If I had to get rid of one or the other, the iPad would have to go...but I would really miss it.
On the other hand, your comment about constantly having to connect your iPad to your computer surprises me. I can't even remember the last time I plugged my iPad2 into my PC.
Sign in to Reply
t.alex
3/9/2012 11:51 PM EST
I think with iCloud it should be convenient. Everything automatically syncs.
Sign in to Reply
mickinuk
3/9/2012 9:37 PM EST
iTunes can wirelessly connect to the iPad/iPhone so that removes the need to plug in if you have WiFi.
The apps can be moved around on the iPad, just press and hold an app and they all start to jiggle, then drag it to where you want it or onto another app to create a folder. Press the home button to exit the jiggle mode.
I use Goodreader to have copies of documents available, especially PDF data sheets and customer proposals. I use dropbox too so I can shares files with my computers. I have a RAID server that has an app for accessing the files remotely. Pages does a good job off loading and editing Word files.
I do use the iPad for a lot more than I ever thought I would. If I am heading to Starbucks to work on a specific document I do take my Macbook air (great machine).
Sign in to Reply
goafrit
3/9/2012 4:14 PM EST
True but the volume will make up for it. If they do not discount it with the announcement of the new ipad, they will throw them in the landfill.
Sign in to Reply
BLinder
3/9/2012 4:48 PM EST
PBS show: Mind over Money, IPad is a great example of something one does not necessarily need, but the perceived have to have becomes part of everyone’s reality. Then we create articles about Apples gross margins, something is missing in our personal equation to find this interesting.
Sign in to Reply
sharps_eng
3/10/2012 9:32 AM EST
Having got a Macbook and iPhone purely for iApp development, I find I now don't choose my PC laptops/desktops for anything except engineering CAD and ECAD. I think it is due to the pure open-and-shut convenience of the Macbook.
Back on topic, though: has anyone verified these BOM cost estimates against the real data for past products? I appreciate the current costings are commercial secrets but, like with the credit ratings agencies (!!), we should check how TechInsights estimates stacked up in the past.
Sign in to Reply
ughhhh
3/10/2012 11:50 AM EST
These BOM cost appear on the high side. If you check http://www.dramexchange.com/ for SDRAM and NAND pricing; 4+13$ vs 8.5+16$ mentioned here. Also the camera is way too high.
I don't know on what volumes these prices are based but certainly not on Apple's.
Sign in to Reply
t.alex
3/10/2012 9:11 PM EST
Apple may have hoarded these components for sometime already?
Sign in to Reply
cdhmanning
3/11/2012 3:50 PM EDT
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.
Sign in to Reply
Tunrayo
3/13/2012 9:58 AM EDT
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.
Sign in to Reply
kinnar
3/11/2012 1:56 AM EST
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?
Sign in to Reply
timemerchant
3/11/2012 5:43 AM EDT
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).
Sign in to Reply
timemerchant
3/11/2012 5:44 AM EDT
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.
Sign in to Reply
Rjs725
3/11/2012 3:40 PM EDT
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/
Sign in to Reply
sharps_eng
3/11/2012 4:08 PM EDT
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.
Sign in to Reply