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iPad BOM decreases as margins grow

9to5 Staff | Apr 28 2011 - 9:19 am PT

Quarterly revenue from iPad and related products and services was $2.84 billion on sales of 4.69 million units, or nearly nine percent of the total $24.67 billion in revenues Apple reported for the entire March quarter. If sales had matched 7.33 million iPad shipped in the holiday quarter, quarterly iPad revenue could have hit $4.61 billion. Sales should grow organically in the coming weeks as manufacturing ramps up, iPad 1 channel inventory dries up and Apple expands iPad presence to new territories.

But wait, Apple is set to milk its darling for all its worth by boosting iPad margins twofold, if Credit Suisse analyst Kulbinder Garcha is to be believed. The analyst forecasts 32 million iPads this year and 55 million next year, adding:

On the question of tablet market share, Garcha currently models iPad’s slice of the market dropping to 53%, from the current 75% level. But he adds that his view could be to conservative. For one thing, he notes that it may take until 2012 for rivals to price their tablets at a discount to the iPad while still making acceptable gross margins.

Apple is growing margins because the cost of components needed to build iPad 2 is 15 percent lower compared to the original model, even with better hardware and new features added to the mix. With 15 percent smaller bill of materials Apple could significantly grow iPad 2 margins from the current 26-32 percent range to an estimated 45 percent, or more than double, the analyst argues.

Higher margins mean more room for profit, which is the music to Apple investors’ ears. This doesn’t come as a surprise. If anything, Apple is a well-oiled money-making machine.

The company benefits from a streamlined product line that yields clean supply chain management because they’re re-using a number of components across products. The Apple-branded A4/A5 processors power both the iPads as well as iPhones and iPods. The same could be true for iPad 2 cameras, especially the front-facing FaceTime camera which is also found on iPhone 4 and iPod touch.

The tablet’s back camera is thought to be of a marginally lower quality than on the current-generation iPod touch. NAND flash, the component Apple pre-pays long-term to get the best prices, is also used across iOS devices.