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Report: 30GB iPod costs Apple $151 to build

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By LC Angell

Contributing Editor
Published: Friday, October 21, 2005
News Categories: iPod

Market research firm iSuppli has taken apart the new video-enabled fifth-generation iPod and concluded that the 30GB device, which sells for $299, costs Apple $151 to manufacture—a profit margin of around 50%. “This is in line with what we have seen with other iPod products from Apple,” says iSuppli analyst Chris Crotty.

Like a similar report earlier this week, which estimated that the 30GB model cost $143.50 to build, the researcher documents the suppliers of components in the new iPod. iSuppli notes that Broadcom makes the video chip, while PortalPlayer and Wolfson Microelectronics produce the audio chips.

“In this case, the Broadcom chip is just for video and the PortalPlayer chip is just for audio,” Crotty says. “Right now, Apple is keeping the functions separate. Over time, you’ll see more chips that do everything. But now it’s probably more cost effective for Apple to do it with separate chips.”

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Comments

1

Watch out - here come the spewers of hate towards Apple - screaming greed and HUGE profit margins. Before you do so, remember that they have to pay for R&D/innovation/staff/overhead/overstock blahblahblah that these figures don’t account for.

Posted by Warren Peace on October 21, 2005 at 7:28 AM (PDT)

2

in all reality, this isn’t unfair. A good rule of thumb for products is to get 50% to 60%.

I’m actually amazed it isn’t more.

Posted by joshua on October 21, 2005 at 7:37 AM (PDT)

3

So, does that include employees’ salaries? Because a true profit would come after that and a few other minor expenses.

Posted by Curtis on October 21, 2005 at 7:37 AM (PDT)

4

Does it include marketing? Does it include cost of materials for packaging?

Posted by Eric Gruber on October 21, 2005 at 7:42 AM (PDT)

5

I think that is completely acceptable.  I work for a shoe store the cost of our shoes are raised 50-60% of whole sale, which in turn match most of our competitors.

Posted by Lindan in Las Vegas on October 21, 2005 at 7:45 AM (PDT)

6

is anybody out there familiar with the term profit margin?

Posted by iJay on October 21, 2005 at 8:03 AM (PDT)

7

I own a company based in skateboard retail. We order in bulk and raise the price 60%-70% so i too am not surprised it isn’t more. I heard it was 90% on the ipod mini 2nd gen.

Posted by Gareth Hall on October 21, 2005 at 8:04 AM (PDT)

8

When you consider that most retailers/resellers expect to make at least a double markup this means that Apple must be selling them to stores for the price it costs to manufacture!!!! The only profit they are making is selling direct from their own Apple Stores (not franchises) or the online store. Now does that make sense???

Posted by brainache on October 21, 2005 at 9:30 AM (PDT)

9

“When you consider that most retailers/resellers expect to make at least a double markup this means that Apple must be selling them to stores for the price it costs to manufacture!!!! The only profit they are making is selling direct from their own Apple Stores (not franchises) or the online store. Now does that make sense???”

Except that the 2-3X wholesale rule only applies below certain price points, and only in certain markets, and further varies by the volume the item moves. For instance, the higher the price point, the lower the markup as a percentage. As another example, it’s not uncommon for major chains to only be marking up high volume items a few percentage points.

I’d guess that something like the iPod is wholesaling for about 80% retail, a price point that lets both Apple and the retailer make a healthy profit.

Posted by Code Monkey in Midstate New York on October 21, 2005 at 9:45 AM (PDT)

10

Does this take into account Apple bulk pricing?  I would think the margin is much higher than this.  My guess would be closer to 70 - 75%. 

With the costs of marketing and other elements (as some of you pointed out) it doesnt make sense for Apple to net 20% off each iPod sold.

Posted by George on October 21, 2005 at 9:48 AM (PDT)

11

I’m sure Apple also receives a discount by committing to purchasing x number of chips.  These companies are probably looking at a per unit purchase price.

Posted by Jason on October 21, 2005 at 10:27 AM (PDT)

12

If only Apple was generous to resellers.  Resellers make about 12% margin on iPods.

Posted by Billy on October 21, 2005 at 10:51 AM (PDT)

13

Apple consistently has had iPods available to resellers for about 85 to 90% of retail price. Distributors (like IngramMicro or Techdata) get it about 8% cheaper.

If anyone’s making a huge profit, it’s Apple, not the resellers. The resellers make their profit off of the iPod accessory market. Those see much better profit margins of around 30% to 60% depending on the item.

Posted by Adam on October 21, 2005 at 1:35 PM (PDT)

14

This is an estimate of component cost of the iPod. It doesn’t include, mfring cost, or packaging, or shipping, or marketing or R&D, or the difference between retail pricing and wholesale pricing, etc.

When you factor in many of those costs, Apple’s typical margin is 27 to 28%, which is info available in their SEC filings and you can hear about it in their conference calls. Flash iPods might be closer to 20%, and the HP deal might have been around 20% gross margin. The hard drive iPods were estimated to be close to Apple’s traditional margin of 27 to 28%. Of course, when all is said and done, Apple might net 9%, because they made about $340 million on about $3.7Billion in sales last quarter.

These component cost breakdowns always get consumers who don’t know what is being measured into an unnecessary uproar.

Posted by KenC on October 21, 2005 at 2:58 PM (PDT)

15

Isn’t the math on the markup wrong?  If the iPod is about $150 to manufacture and sells for $300 (yeah, yeah $299 and change) then the profit margin is a healthy 100%, not 50% as stated.

Posted by Bandito on October 21, 2005 at 2:58 PM (PDT)

16

I think they probably are accurate; the other 50% (i.e. the other $75) goes to the costs mentioned above.

Posted by dethbrakr in Tacoma, WA on October 21, 2005 at 6:24 PM (PDT)

17

It costs $151 and apple gets the rest as profit. All the TV commercials are free. All the apple and apple store employees love their jobs so much they work for free. Heck getting them to the store on the truck is free too.  I’m sure all it costs to get an iPod into your hands is just the price of the parts, all the rest is pure profit!! Steve Jobs is an evil genius.

Posted by jimmydean on October 23, 2005 at 9:03 PM (PDT)

18

dude, a lot of you guys are idiots when it comes to business… so you mean to tell me this leads you to believe apple puts $149 in their pocket every time a 30 gig sells? morons…

Posted by some dude on October 23, 2005 at 11:57 PM (PDT)

19

how much is a dollar worth anyway?

Posted by be on September 26, 2007 at 3:47 PM (PDT)

20

“Isn’t the math on the markup wrong?  If the iPod is about $150 to manufacture and sells for $300 (yeah, yeah $299 and change) then the profit margin is a healthy 100%, not 50% as stated.” - Bandito

Im sorry, I just have to correct this. It is impossible to make 100% profit margin, as this implies it cost you absolutely nothing to produce the product you are selling!

The $300 selling price means that 50% of this price is profit for apple as it cost them the other 50% of the price ($150) to actually make the product.

Posted by JoeA on October 18, 2007 at 8:09 AM (PDT)

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