Apple makes $208 on each $499 iPad

Profits jump to $446 on top-end $829 model, analyst estimates

The $499 version of the new iPad tablet actually runs Apple about $270 in materials and manufacturing costs, a Wall Street analyst said today.

According to a bill of materials (BOM) analysis by Brian Marshall of BroadPoint AmTech, the cost of goods inside Apple's 16GB Wi-Fi-only iPad totals $270.50. That figure includes a $10 line item dedicated to manufacturing, but doesn't include another $20 set aside for under-warranty service costs. Adding the latter makes Marshall's bottom-line total $290.50.

The most expensive component on his price list was the 9.7-in. LCD touch-sensitive display, which he tagged at $100. The 16GB of memory and the aluminum case cost about $25 each, said Marshall, while the Apple A4 chip was listed at $15.

Because that model will sell for $499, Apple's profit margin is 42.9% after the $20 warranty set-aside is factored in.

As a hardware expert pointed out Wednesday, the iPad that can connect to the Internet via a 3G data network is even more profitable, since Apple adds a $130 surcharge for those tablets but incurs a very small hardware cost to add 3G.

By Marshall's estimate, the $629 16GB iPad with Wi-Fi and 3G costs Apple $306.50, just $16 more than the Wi-Fi-only model, giving the company a profit margin of 52%, a jump of nine percentage points.

In all cases, the Wi-Fi-plus-3G iPad provides a bigger margin that the same configuration in Wi-Fi-only. The $599 Wi-Fi-only iPad, which includes 32GB of flash storage, costs Apple $316, for a margin of 48.1%; the same iPad with 3G has a $729 price tag, but runs Apple only $332, a margin of 55.1%. That's the highest of any iPad according, to Marshall's analysis.

Apple's iPad line as a whole enjoys a margin of approximately 50%, assuming that the lower-priced Wi-Fi-only tablets sell much better than the 3G models. In a research note to investment clients, Marshall called the iPad "another grand slam for Apple," and upped his estimate of iPad sales during 2010 from 2.2 million to 7 million.

High profit margins are standard for Apple, which earlier in the week boasted that its corporate margin for 2009's final quarter was 40.1%. Some products, in fact, have estimated margins even higher than Marshall's iPad numbers: The consensus for the iPhone 3GS is above 60%, for example.

"If [Marshall] is right, this shows that there's room going forward for Apple to reduce the price of the iPad," said Ezra Gottheil, an analyst with Technology Business Research. "I think the $499 price point is very aggressive, but if they dropped [the price] it would really put the iPad in the netbook range. At a lower price, consumers will have to decide what they want for a portable work and play device, a netbook or get an iPad."

Marshall was one of the first to put numbers on how much Apple stands to make from its newest product. iSuppli, a research firm in El Segundo, Calif., that's noted for tearing apart electronics to build detailed BOM models, declined to provide its own estimate today, saying that it was working on a preliminary price list that it would publish sometime next week.

"We really want to wait until we know a little more about what's inside," said Andrew Rassweiler, the director of iSuppli's teardown services. "We'd rather not just throw numbers at it yet."

Even so, iSuppli has come to some preliminary conclusions about the iPad. "It does seem like a gigantic iPod Touch," said Rassweiler, "which means that although some costs would just scale up from the iPod, like the display and the touch screen, a lot won't." The iPad components that provide Wi-Fi, Bluetooth and GPS, for example, will likely be the same parts used in the iPod Touch.

Rassweiler will be conducting an iPad teardown as soon as Apple ships the tablet, which is slated to be in late March.

Among the mysteries he hopes to solve then is what powers the iPad.

Apple has acknowledged that the iPad contains Apple-designed silicon, which it's labeled an Apple A4 chip, but hasn't confirmed what most analysts assume — that the A4 was created by P.A. Semi, the Santa Clara, Calif., boutique microprocessor design company Apple acquired in 2008. The Apple A4, said Aaron Vronko, CEO of Rapid Repair, a firm that services Apple's mobile hardware, is actually a "system-on-a-chip" that almost certainly includes a single-core ARM Cortex-A9 processor running at 1GHz.

iSuppli's Rassweiler said that until he could look at the chip, examine what he called "the geometry of the die," he had no more information about what the A4 actually was than anyone else. "I'm betting it's not off-the-shelf components," he said, talking about the A4's CPU and graphics processor, "but instead that it's a customized version from standard building blocks."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, send e-mail to gkeizer@ix.netcom.com or subscribe to Gregg's RSS feed .

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