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Apple makes $208 on each $499 iPad

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

January 29, 2010 03:57 PM ET

Computerworld - 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."

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