Samsung’s new Galaxy Note 10.1 Android tablet tops iPad’s profit margin

by David Needle

August 24 2012

A new teardown analysis by IHS shows Samsung can make its Galaxy Note 10.1 tablet for less money than Apple’s latest iPad.

IHS says the WiFi-only version of the Galaxy Note 10.1 costs about $260 to make versus $316 for the newest iPad. Both the iPad and Samsung’s new Note retail for $499.

The Galaxy Note 10.1 with its S Pen for input and Multiscreen for multitasking is distinct from other Android tablets with features designed to appeal to business professionals.

IHS says Samsung is able to leverage its manufacturing prowess, including access to components it makes for other devices and manufacturers to keep its profit margins high. 

“Samsung is a behemoth in the electronic industry and its competitive strength lies in its control, via internal sourcing, of a large percentage of the components that go into its final products,” said Andrew Rassweiler, senior director of teardown services for IHS.

“This allows Samsung to keep costs down, while delivering competitive differentiation. The company’s internal sourcing strategy is certainly in evidence in the Galaxy Note 10.1, where Samsung supplies the memory—both flash and DRAM—as well as the core processor, battery and many other components.”

Two important caveats to the IHS report. The iPad estimate is based on an analysis done shortly after Apple released the device in April. With its huge volume purchases of components and supply chain efficiencies, it may already cost Apple less to produce its newest iPad with Retina display.

Second, IHS’ assessment covers hardware manufacturing costs, but as with other teardown analyses, does not include additional expenses companies like Apple and Samsung have including hardware and software development and design, licensing and royalties as well as marketing.

The price is right?

IHS also raises the possibility that despite its manufacturing prowess Samsung may be forced to discount or drop the $499 price to compete more effectively with the iPad and other lower costs tablets.

“The hardware profit margin for the Galaxy Note 10.1 only holds true if Samsung is able to maintain its initial price. And therein lies the rub: no Apple rival has yet demonstrated the capability to actually sell in volume at $499, instead falling back on price cuts in order to drive volume,” said Rhoda Alexander, director of tablet and monitor research for IHS.

Apple and Samsung are currently locked in a high stakes court battle in a patent case that is now under consideration by the jury. Apple claims Samsung “slavishly” copied the industrial design of its iPhone and iPad products and is seeking $2.5 billion in damages. Samsung denies the charges and has said there is prior art showing Apple’s designs are not original.

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