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iSuppli nano teardown reveals wide margins for Apple

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By Charles Starrett

Contributing Editor
Published: Wednesday, September 19, 2007
News Categories: iPod nano

Market analysis group iSuppli has completed its teardown of the new iPod nano (with video), and estimates the Bill of Materials cost of the 4GB model to be $58.85, giving it the lowest BOM cost of any member of the nano line analyzed by iSuppli. The firm estimates the 8GB model’s BOM cost to be $82.85. While these estimates do not include other costs such as manufacturing, software, intellectual property, accessories, packaging, R&D, or advertising, the company claims the ratio between the 4GB nano’s BOM cost and its retail price of $149 is quite high, even for Apple. Part of this reduction in costs may be attributed to changes in component suppliers. “The changes in components have resulted in significant cost reductions in the nano design, allowing Apple to offer a product that is less expensive to build and that has enhanced features compared to its predecessor,” said Andrew Rassweiler, senior analyst and teardown services manager for iSuppli.

Among these new component suppliers, Micron, Dialog and Intersil — along with the return of Synaptics — the “big winner,” according to iSuppli, was U.S. semicondutor supplier Micron. ISuppli claims this is the first time they have identified a Micron part in an iPod; in the nano torn down by iSuppli, Micron was the manufacturer of the NAND flash memory that serves as the media player’s storage, an estimated $24 part in the 4GB model and $48 in the 8GB. iSuppli notes that while this is a major win for Micron, Apple will likely continue to use Samsung, the world’s largest producer of NAND-type flash, as suppliers of NAND memory. Samsung supplied the combined core video processing chip in the system, which is estimated to cost $8.60.

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Comments

1

The ratio of MSRP to BOM cost (called cost of good sold [CGS]) in most consumer goods is typically 3:1 to 4:1. The design goal is almost always 4:1.

Perhaps consumer electronics are different, but in the fitness equipment industry and water filtration industry, where finished goods range from $600 to $8,000, such 4:1 margins are common and, in fact, necessary to drive marketing and R & D functions.

I am curious as to whether the breathless reporting of “high” Apple iPod margins over the past year are because consumer electronics margins are very different from other consumer goods, or because of a lack of familiarity of the reporters about typical manufacturing margins.

Posted by Bob Starr on September 19, 2007 at 12:06 PM (PDT)

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