The new iPad tablet priced at $499 actually runs Apple about $270 in materials and manufacturing costs, a Wall Street analyst has claimed.
According to a bill of materials (BOM) analysis by Brian Marshall of BroadPoint AmTech, the cost of goods inside Apple 's 16GB WiFi-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 per cent 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 WiFi and 3G costs Apple $306.50, just $16 more than the WiFi-only model, giving the company a profit margin of 52 per cent, a jump of nine percentage points.
In all cases, the WiFi+3G iPad provides a bigger margin that the same configuration in WiFi-only. The $599 WiFi-only iPad, which includes 32GB of flash storage, costs Apple $316, for a margin of 48.1 per cent; the same iPad with 3G has a $729 price tag, but runs Apple only $332, a margin of 55.1 per cent. 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 per cent, assuming that the lower-priced WiFi-only tablets sell much better than the 3G models. In a research note to investment clients, he 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 per cent, 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 WiFi, Bluetooth and GPS, for example, will likely be the same parts used in the iPod touch.