Researcher estimates iPod nano profit margin at 50% | iLounge News

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Researcher estimates iPod nano profit margin at 50%

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By LC Angell

Contributing Editor
Published: Friday, September 23, 2005
News Categories: iPod nano

Market research firm iSuppli has disassembled a 2GB iPod nano and estimates the $199 device’s components to cost Apple $90.18 to build and $8 to assemble, leaving a profit margin of about 50% before marketing and distribution costs.

“That’s consistent with the margins on earlier iPod versions and serves as a reminder of what a profit machine the iPod family of products has become for Apple since it was introduced in 2001,” notes BusinessWeek.

iSuppli also confirmed who makes the parts Apple used in the device. As expected, the firm said the nano’s audio-chip is made by PortalPlayer, its flash memory by Samsung, and that Apple dropped the touch-sensitive technology from Synaptics in favor of an Apple-designed click wheel that contains a 55-cent chip from Cypress.

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Comments

1

Greed!!!

Posted by Talking Madness in Los Angeles on September 23, 2005 at 10:58 AM (PDT)

2

“…before marketing and distribution costs.” These channel and markeing costs. especially wiht the heavy TV adverts, plus R&D also account for a VERY significant portion of overhead. 50% production cost is quite common. Calling it “greed” only shines on ones own lack of understanding.

Posted by Toby on September 23, 2005 at 11:17 AM (PDT)

3

Didn’t the Ars Technica autopsy find Toshiba, not Samsung memory chips in the 2GB model?  Is iSuppli not doing all their research, or is something mysterious going on?

http://arstechnica.com/reviews/hardware/nano.ars/4

Posted by Andrew on September 23, 2005 at 11:25 AM (PDT)

4

Greed!!!

A friend of mine works for Cypress. Says Apple really screwed them on the price-per for the clickwheel chip, but that Cypress was *so* eager to get into the iPod that it just basically bent over and sold them to Apple at way below cost. Cypress figures it will be able to sell through to Creative and Samsung for more based on the presumed success of the Nano.

Posted by Demosthenes on September 23, 2005 at 12:08 PM (PDT)

5

Toby-

My POV is not the result of a lack of understanding, it’s based on the fact that Apple is lowering their cost across the board, but raising the price on players. 

That’s what I call…GREED!

Posted by Talking Madness in Los Angeles on September 23, 2005 at 12:14 PM (PDT)

6

Talking Madness, Toby is right and you are quite simply wrong.

That margin estimate is based on retail price, which Apple gets from web orders and Apple stores but not from third-party distributors.

The failure to include marketing costs is also significant, since Apple is spending heavily in major markets (outdoor and television).

Finally, keep in mind that most competitors are selling 1GB flash players for $150-175, while Apple is offering 2GB-4GB players for $199-$249. Even compared to a thumb drive, Apple’s price/GB is pretty generous.

If anyone’s greedy in this scenario, it’s iSuppli, grabbing sensationalistic headlines based on shoddy estimation. Materials cost is nice to know, but it’s far from the whole story.

Honestly, I fault ilounge for jumping on the bandwagon and reporting it straight rather than providing the conext that might help readers understand what this dramatic press release does and does not mean.

Posted by rogermexico on September 23, 2005 at 12:43 PM (PDT)

7

Rogermexico-

First, I commend iLounge for not censoring the material they make available on their site.  I guess you want raw data put through Apple/rose colored lenses before it hits us.

Second, I’m aware of the fact that the article doesn’t account for every expenditure Apple has, but the point remains the same…Apple is effectively controlling the price of the iPod through salacious means.

Jobs is ranting about the greedy Labels as if he’s a crusader for the everyman who deserves music at $.99 a pop, but should at the same time lay out as much as $399 for the player.

The point also remains that Apple is doing everything it can to lower the cost of producing iPods, but is effectively raising the price.  Across the board their costs are coming down including all the things you feel the article left out.  Distribution costs, advertising, marketing and R&D are all dropping for Apple, but the price is either effectively staying neutral or going up.

Routinely the iPod was given a higher capacity drive, but the price stayed the same.  As drives became cheaper Apple would replace the line with higher capacity drives to allow them to keep the price level rather than offer the lower priced drive in a lower priced iPod.  This is on one hand good business sense, but on the other a desire to make as much money as possible, a desire to keep margins and revenue as high as possible…better known as greed.

Maybe the only problem you have with accepting the point is that you love your iPod so much that it can do no wrong.

Posted by Talking Madness in Los Angeles on September 23, 2005 at 1:11 PM (PDT)

8

Well the first thing we can do is stop the antagonistic comments.  Just make your points. 

A USATODAY article mentioned that the wholesales price of 2 gigs of flash is $99.

Wall Street Journal commented that Apple might actually be taking a slight loss on the 4 Gig model in order to build share and to continue to grow its download itunes business.

I don’t know what expertise iSupply has or who they are .... but I certainly take the point that marketing/packaging/shipping/product development etc. are important parts of the equation.

But, if the credible news reports are close to right, the 4 gig flash costs somewhere south of 200 dollars, add on a battery, case, color lcd screen, chip etc. and then add on distribution/marketing/shipping costs
and the Wall Street Journal report seems to be quite possible to me.

I don’t think that news should be censored, but I do think that ilounge should only report as ‘news’ credible sources.  After all, if CBS reported unreliable sourced talk’ on its show, we would (and have been) quite upset, why should a web site like ilounge be held to a lower standard?

People with an attention span of a flea will come to this site and just see 50 percent markup and just mentally go with that number… that’s now right or fair.

Posted by ctyankee on September 23, 2005 at 5:13 PM (PDT)

9

Supply and demand.  Don’t want it?  Don’t buy it.  Price will come down or they will stop selling it.  Want it?  Front the money it costs then.  Simple as that.  Apple is charging a price the market will bear.  They don’t have an over supply of the units, and I don’t see an extreme shortage that would warrant a higher price than is now.  Don’t like it?  Tough, that is the way things work.

Posted by sam on September 23, 2005 at 6:29 PM (PDT)

10

Sam-

The law of supply & demmand is the biggest con ever pulled on consumers.

And, selling for “what the market will bear” is by definition greedy.

Posted by Talking Madness in Los Angeles on September 23, 2005 at 10:48 PM (PDT)

11

TM,

What?  You don’t like $100 hotels in Dallas charging $600 a night for the Rita rush? smile

IF that’s the true material costs for a nano, aside from what nanos Apple sells themselves, the profit margins isn’t all THAT great. Chinese labor may be cheap and all, but when electronics ship to stores, often the price to retailers is around 40-60% of list price. Assuming that iPods are sold to Best Buy, Amazon, Wal*Mart and the rest at the upper end of that range (only because iPods tend to move off shelves faster than the typical electronics products), that’s still not a lot of wiggle room.

Betcha it’s A LOT cheaper than $98 to build a 2GB nano…

Posted by flatline response on September 24, 2005 at 8:35 AM (PDT)

12

I can’t believe they neglected to mention all the R&D costs, the personnel costs, and the costs of protecting your IP.  Those are signficant.

I just don’t understand the big deal.  I think ~$200 is a good price for the nano.

Posted by Chad on September 24, 2005 at 10:47 AM (PDT)

13

This is talking about the gross profit margin not the net profit margin. This type of profit margin is typical for gross in most area’s. This is like saying that it costs a mc donalds 1 dollar for the meat cheese etc on a big mac and they sell it for 2 dollors so they are getting 50% profit. We’ll yeah but you left out rent on the building, paying all the staff, maintainence on the equipement, taxes, etc, etc, etc. Take all that over head out and they are probably closer to a quarter profit on that big mac.

These numbers very well may be right and possibly about the only numbers you could get with information publicly available but with out an explanation of what it mean it will be misunderstood by most everyone.

Posted by KPB on September 24, 2005 at 12:35 PM (PDT)

14

Flatline-

Amen, brotha.  Price gouging like a motha is goin’ on in Texas right now.  I heard the iPod Nano is $1,695 and iTMS tracks are $14.99 along the Gulf Coast…:)

Posted by Talking Madness in Los Angeles on September 24, 2005 at 5:04 PM (PDT)

15

Law of supply and demand has never been shown to consumers.  Doubt most would understand it.  But it still is valid unless you want to be in Cuba.  Even there the communist government would apply it to non-necessary goods.

I checked dictionary.com and looked up “what the market will bear”, funny I could not find a definition for it.

The iPod Nano is not a necessity.  They could charge $1000.00 bucks for all I care.  Sounds to me like a case of sour grapes.  Probably can’t afford one and have to call them “greedy”.  It’s ok, there are plenty other non-greedy options out there.

I for one hope they make as much money “as the market will handle.”  The stock looks ripe for the picking.

Posted by Sam on September 25, 2005 at 7:18 PM (PDT)

16

Sam-

Open your eyes.  Come back to reality.

By the way, do you own any Apple stock?

Posted by Talking Madness in Los Angeles on September 25, 2005 at 8:01 PM (PDT)

17

TM, believe it or not, not everyone who passed Economics 101 owns Apple stock.

Also, please look up “salacious,” apparently they didn’t teach that in Trolling 101.

Posted by rogermexico on September 25, 2005 at 9:18 PM (PDT)

18

Rogermexico-

I’m sorry you had to go look the word ‘salacious’ up, but maybe you should read the definition again, and again, and again until you get it.  Once you get a firm grasp on the word you’ll understand why I chose it.

The way you and many other people fawn over Steve Jobs and his every move, it’s not a stretch to think that you’re getting some kind of sexual gratification out of your Apple fanboyism.  Yes, I know ‘fanboyism’ ain’t a word, but I believe it appropriately describes your behavior.

Now, if you would take the time to go back and read your initial post in this thread, you will see how truly unintelligent you are.

Bet you’re not even bright enough to catch the mistakes you made.

Posted by Talking Madness in Los Angeles on September 26, 2005 at 2:14 AM (PDT)

19

heehee - you win. Best troll ever.

Posted by Rogermexico on September 26, 2005 at 12:54 PM (PDT)

20

I see Apples profit margins @ 50% just for the iPod as incredibly profitable.  In comparison to any other marketable product, getting back twice your premium is pretty damn good.  Not to mention the truth that the “i” line of products—including the mp_ players and the cell phone—is a self-sustaining advertising monster, willing to use grammatical license to annex industry jargon for publicity.  Steve definitely knows whats good, for his shareholders at least.

Posted by gabegaskin@gmail.com on January 18, 2008 at 12:54 PM (PDT)

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