A report from IHS, via Re/code, has costed out the various components of the iPad Air 2. Naturally, these prices are estimates — the exact nature of the deals Apple negotiates with its suppliers are not common knowledge. The report says that the iPad Air 2 costs Apple $275 in materials, with the screen making up the largest share with costs around $77.
This culminates to a very similar bill-of-materials to the last iPad Air, which IHS estimated was worth $264 in components. This leads to an implied profit margin of 45 percent, but obviously there are more things that have to be accounted for than parts alone.
What’s most striking from this breakdown is how Apple continues to exploit customer’s wallets when it comes to memory storage. According to IHS, the 16 GB chips in the low-end iPad model cost Apple less than $10. At the high end, 128 GB sticks are priced at about $60 per unit.
Nevertheless, Apple charges four times as much for the upgrade a retail, a $200 premium. This is an improvement over last year, though, where Apple would actually charge $300 for 128 GB as it sold 4 different storage sizes of iPad topping off at $799.
… I’d love to see the profit margins on the iPad mini 3.
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I bought the 64 GB iPhone 6 (I previously had a 32 GB iPhone 5) and the 64 GB iPad Air 2 (I previously had the 32 GB iPad 3). I’ve told several people that I would have gladly purchased the “base” model if they came with 32 GB. It would have saved me $100 for each device. 16 GB of storage space is nothing when so much is being used by the operating system.
The pricing has nothing to do with storage, that’s just the excuse and marketing. It’s all about subsidy. The more expensive models higher profits subsidize the lower models lower profits. The overall average is what Apple needs to target in terms of profit, and at the same time, they want customers from as many financial levels as possible.
Tricky math here: If base (16GB) is around $10, and 128GB stick is $60, Apple’s “profit” on the upgrade is $150 (two tiers of upgrade at $100 each , minus the $50 additional cost of the 128GB stick). A profit margin of 75% – not bad for a days work…
Can’t assume the base price. But generally, the pricing tiers don’t have anything to do with the actual storage inside, keep in mind. They are simply “low”, “mid”, “high”. The memory storage might as well not cost Apple anything, it’s irrelevant, it’s just an excuse to have 3 pricing tiers to serve more customers. Apple can’t make enough profit to keep Wall Street happy by selling a top tier 128GB model for $499. So the more expensive models subsidize the cheaper ones, and bring in more customers. Apple makes the least profit on the $499 model, but makes up for those losses in the higher profits of the 64 and 128GB models. This way, they can make the profit spread then need to (it’s all just iPad profts to Apple, they don’t have to break them out by GB model) and still get entry level folks who just can’t afford more than $499.
A lot of people complain about the margins Apple has. If you want to check see high margins, check out the stationary department or craft section of a Wal-Mart. Pen refills and sew on buttons have some crazy mark-ups. The biggest losers are things in the electronics section.
Yeah, or “designer” purses lol. That Coach bag the ladies drool over for $800 cost them $10 to make in China. How’s that for profit.
Everyone needs to remember though that this is gross profit, not net. It might cost $275 in materials, but that doesn’t say anything about the hundreds of millions they have to spend on R&D, design, overhead for all salary employees, taxes, building costs, and marketing.
Not to be too picky, but on the P&L, the cost of goods sold would not be $275. That amount is just the raw materials, it would not include labor to assemble, nor would it include shipping costs to get it to the stores, all of which would be included in the final products cost.
In previous IHS summaries, they DO include “build” cost, which is the cost of “labor to assemble”. And it is, as most might expect, depressingly low (a dollar or two). I do no recall them mentioning “shipping costs”, but, in bulk, such costs would likely disappear to zero compared to other costs (they’re shipping ConEx’s of those things out, literally “boat loads”). Packaging and accessories are not included either, IIRC. The major costs associated with Apple product that are not detailed would be those packaging and accessories costs (think about $5-$10 each per unit), design/engineering R&D (although that is likely greatly reduced overall at this point, outside of CPU R&D, since there is a healthy amount of competition R&D for components–Amazon and Android tablets are also providing lower cost, advanced LCD technology for the market Apple is buying in), services cost (iCloud datacenter operation, but definitely less than a few dollars), and, finally, Operating System engineering costs (given OS X’s prior pricing, somewhere around $100, at most, after EXTREME margins, so ~$10-$20 per unit). Either way, we know Apple’s ASP (Average Selling Price), so we have an idea of the product mix, and we know their announced margins are around around ~40%…so, given all that, the IHS numbers are close enough for horseshoes and hand grenades.
Oh, and I forgot MARKETING in that list of costs. And marketing is likely a lot, by percentage.
What? So, why can they not double the storage. Hell, I would pay $500 more for a 256 GB iPad. I ended up buying the iPad Air 2. It would have been amazing with more storage. I guess that means I will buy less iTunes Music and Movies, so I do not fill up my mini 128 GB drive…(Maybe that is why iTunes is in trouble)