Apple, as usual, has left itself with a pretty good profit margin for the new iPad that went on sale Friday, but one interesting detail emerged from the IHS teardown — the newer model costs more to make than the older iPad II even though Apple kept the same $499 starting price.
A couple of important caveats are in order. Teardown analysis does not include things like marketing and development expenses so just what it cost Apple to bring any of its products to market can’t be known with any certainty by anyone outside the company.
IHS itself is careful to note its teardown estimates only cover the hardware and manufacturing costs and says the specific details it just released for the new iPad are "preliminary."
The teardown analysis (which quite literally involves a precise tearing apart of the device to reveal its components) results in an estimate of the bill of materials (BOM) Apple paid to component suppliers. In the case of the new 32GB, 4G LTE iPad, IHS estimates the BOM to be $364.35 (manufacturing costs add another $10.75).
That means the BOM is 50% of the $729 retail price of the 32GB LTE iPad.
For the low end or entry level iPad with 16G and no LTE, IHS estimates the BOM is $316 (including manufacturing costs). The high end 64GB model with integrated LTE has a total BOM and manufacturing cost of $408.70.
The hi res display comes at a high price
The new iPad’s Retina display is its most eye-catching feature (pun intended) and IHS says it costs Apple considerably more than the display used in the original iPad and iPad 2.
“The first two generations of the iPad employed the same type of display—a screen with resolution of 1,024 by 768 pixels. For the third-generation new iPad, Apple has taken a significant step up in display capabilities and expense, at four times the resolution and 53% more cost,” said Andrew Rassweiler, senior principal analyst of teardown services at IHS.
Specifically, IHS estimates that the new iPad’s Retina display, with a resolution of 2,048 by 1,536 pixels, costs $87, compared to $57 for the screen used in the iPad 2. The $87 cost accounts for 24% of the BOM of the new iPad with 32GB NAND and LTE, which IHS says makes the Retina display the most expensive single component in Apple’s newest tablet.
IHS estimates that a key area of profit margin for Apple is what it charges for higher end models with more memory.
“The NAND flash memory is one of the key profit-generating components for Apple in the new iPad line, as it has been in previous iPads and in the iPhone family,” said Rassweiler. “Apple makes far and away more money in selling consumers NAND flash than NAND flash manufacturers make selling it to Apple. And the more flash in the iPad, the higher the profit margin there is for Apple.”
For example, the retail price of the 32GB LTE-enabled new iPad is $100 higher than the 16GB model. However, IHS says Apple’s BOM for the 32GB version is only $16.80 more compared to the 16GB model.