In an industry that is used to cut-throat rivalry as part of its day-to-day business, Apple has the luxury of selling product with outrageous profit margins that are often twice or three times higher than the industry average. The iPad is no exception, but if iSuppli’s teardown analysis is correct, then it appears that the iPad is slightly less profitable than the first generation iPhone and the 16 GB iPad has an unusually tight bill of materials (BoM) that results in a gross margin of less than 50%.
iPad and iPhone
iSuppli’s teardown analysis reports offer interesting insight in consumer electronics products and how much manufacturer may pay to bring a product to market. The numbers provided are slightly misleading, if you don not look closely, as they only cover the plain bill of materials and manufacturing expenses. Not included are research and development, marketing and PR, as well as shipping expenses.
With that in mind, iSuppli estimates that Apple’s BoM and manufacturing for the 16 GB $499 iPad is $259.60. The 32 GB version ($599 retail) climbs to $289.10 and the 64 GB model ($699 retail) to $348.10. Not surprisingly, the components that make up the subsystem consisting of the LCD panel, touch-sensitive overlay, glass covering, and necessary drive and touch electronics accumulated more than 40% of the BoM in the 16 GB iPad. Apple’s gross margin is estimated at 48.0% for the 16 GB model, 51.7% for the 32 GB iPad and 50.2% for the flagship version with 64 GB.
In any scenario, the iPad is yet another gold mine for Apple, given sales estimates that are approaching 1 million units. However, it is interesting to note that the iPad’s gross margin is less than what iSuppli estimated for the first generation Phone. The $599 8 GB iPhone had a BoM of $265.83 when it launched in 2007, resulting in a gross margin of 55.7%. The phone had a BoM that was very comparable to the BoM of the 16 GB iPad which is priced at $499.
If iSuppli is correct, then Apple’s profit from the 16 GB iPad may be less than the profit that was generated from the 4 GB iPhone.
That said, it is stunning that Apple can manufacture iPads at such prices, charge almost twice the manufacturing cost and sell hundreds of thousands of a product that aims to establish a category that has repeatedly failed in the past.
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