How Much Does an iPod Cost Apple to Manufacture?
BusinessWeek has published component cost estimates of popular hardware gadgets done by a Silicon Valley market research firm, iSuppli. According to iSuppli Apple Computer Inc. (AAPL) aims for a 50% Gross Margin (Revenue - Cost of Goods Sold). By tearing apart 1st Generation 2 GB iPod Nano, iSuppli estimated that the cost of components for the gadget was $ 98.18. The 1st gen 2 GB iPod Nano sold for $ 199 giving Apple approximately 50% Gross margin.
By the same tear-apart method iSuppli estimated the cost of iPhone and other iPods:
- iPhone 4 GB Retail Price $499 Cost of Components $ 230
- iPhone 8 GB Retail Price $599 Cost of Components $ 265
- Video iPod 30 GB Retail Price $299 Cost of Components $ 151
- 2nd Gen iPod 4 GB Retail Price $199 Cost of Components $ 72.24
Apple gets 53.9 % Gross Margin on the 4 GB version and 55.75% on the 8 GB iPhone. Clearly, if you were deciding between the 4 GB or 8 GB iPhone you would be getting more value for your money (per GB) if you purchased the 8 GB plus help Apple also :).
Interestingly only Apple seems to be making a positive Gross Margin on its gadgets. Sony and Microsoft are deep in red.
iSuppli estimates that Microsoft Corp (MSFT) is bleeding $ 71 per Xbox 360 it sells. (Retail price $ 399, Cost of components: $ 470).
Sony also loses money on the sale of each PlayStation 3. Sony loses $ 241 for each 60 GB version and $ 306 for each 20 GB version. (Retail price of 60 GB PlayStation 3 is $ 599 and Cost of Components $ 840; Retail price of 20 GB PlayStation 3 is $ 499 and Cost of components is $ 805).
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7 opinions for How Much Does an iPod Cost Apple to Manufacture?
Anonymous
Jan 24, 2007 at 9:41 pm
hey, if i am not wrong, 199$ on 98.71$ cost of production is a 100% margin of profit…
Ujwal Tickoo
Jan 25, 2007 at 12:30 am
Hi,
The Gross Margin Calculation is correct. You, I guess are referring to Profit as ((Revenue - Cost/Cost)) and your calculation is correct.
The url for forumula/concept of Gross Margin is on Wikipedia: http://en.wikipedia.org/wiki/Gross_margin
Notice I am using Gross Margin *not* Profit. And cost of componets is one direct cost involved for a gadget. Direct Labor is the other cost and it is not included by iSuppli.
Finally, there will be other costs involved that are shared across a business / product line / product range. These costs (Sales & Marketing, Admin, Taxes) although in aggregate are high — would be very small for a single iPod and difficult to calculate or perhaps less relevant in the context of this post.
Anonymous
Jan 30, 2007 at 11:46 am
“Interestingly only Apple seems to be making a positive Gross Margin on its gadgets. Sony and Microsoft are deep in red.“
Research in Motion is making a profit on the hardware, this is also the case for Motorola, Nokia, etc. The console market is a bit special but Nintendo is not selling its consoles at a lost like Sony or MS.
“By the same tear-apart method iSuppli estimated the cost of iPhone.“
How can you tear apart an iPhone if you can’t get your hands on one? :-)
The iSuppli estimate is disputed by DisplaySearch: “However, there’s a much less bullish calculation on the issue today from DisplaySearch… The big issue is the cost of the display. DisplaySearch contends that the display - a 3.5 inch screen with 320 x 480 resolution - will cost Apple close to $60, or nearly twice other estimates.”
Ujwal Tickoo
Feb 3, 2007 at 7:41 am
Hi,
1) Thanks for the info on Display Search.
2) “How can you tear apart an iPhone if you can’t get your hands on one”
Agree that iPhone isnt available. What I meant was that iSuppli worked out the cost of components for an iPhone through “the knowledge” gained by rip apart of several hundreds of related/similar devices. If you have ripped apart a few 1000 mobile phones and ipods and DVD players and know the cost of their components — calculating costs for iPhone’s shouldnt be that tough? Its like if you are in the business of car repairs and have been around for several years ripping them apart then when a new car comes and you know its performance — you can work backwards and figure out whats new or different in the car etc.
Thanks for the info on Display Search.
Ujwal Tickoo
Feb 3, 2007 at 7:41 am
Hi,
1) Thanks for the info on Display Search.
2) “How can you tear apart an iPhone if you can’t get your hands on one”
Agree that iPhone isnt available. What I meant was that iSuppli worked out the cost of components for an iPhone through “the knowledge” gained by rip apart of several hundreds of related/similar devices. If you have ripped apart a few 1000 mobile phones and ipods and DVD players and know the cost of their components — calculating costs for iPhone’s shouldnt be that tough? Its like if you are in the business of car repairs and have been around for several years ripping them apart then when a new car comes and you know its performance — you can work backwards and figure out whats new or different in the car etc.
Anonymous
Feb 5, 2007 at 4:22 am
How about the R&D ? does it not count for a significant portion of the overhead / equation and make it more informative ?
TheBizofCoding
Jun 25, 2008 at 3:51 am
iSuppli estimates the cost for iPhone 3G (8GB) for Apple to be $179. At this cost and with a clever business Model, Apple will not only make solid profits but it will give a lot of pain to competition.With the…
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