Slashdot Mirror
The Profit Margin on the iPod nano
Ant writes "BusinessWeek Online reports that researcher iSuppli took a look inside the iPod Nano to find out how much Apple is making off it, and who supplies its parts. From the article: 'Apple has sold some 16 million iPods in the first nine months of fiscal 2005, and 21 million since its inception. Thus far in fiscal 2005, the iPod has brought in $2.6 billion in revenue, accounting for about 25% of Apple's total.'"
Here's the part of the article that actually pertains to the headline:
Market research firm iSuppli set out to satisfy the curiosity by buying the $199 2-gigabyte version of the Nano and tearing it apart. The verdict? It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%. That's consistent with the margins on earlier iPod versions and serves as a reminder of what a profit machine the iPod family of products has become for Apple since it was introduced in 2001.
It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%.
The article is light on details. I hope they took account of amortization of any tooling or plant investment. It's this sort fo thing that stops the small players, hobbyists and enthusiasts producing anything similar for reasonable money.
Ydco co
Of course, R&D costs nothing, fabrication is free, paying employees for design and support is volunteer based, and filing the patents and copyrights by lawyers are all pro bono.
How is this useful? So now we know how much the pure hardware costs for the Nano? Big deal. It's probably on par with pretty much any MP3 player, especially flash based ones. Is this supposed to convince people that "Oh noes, look, Apple really DOES make money on its hardware!"
Duh. We know Apple makes money on its hardware. So does every other company that makes hardware. But this says nothing for the actual cost to Apple of the device, without consideration for, you know, actually designing and creating the thing.
I hope the extreme reception the Nano got (mine is on the way) is a wake up call to Palm et. al they better get back to their roots and make some THIN and LIGHT devices you can actually easily take with you.
No input on the Nano is crummy, but it's form factor makes it much more likely I will take it someplace.
..don't panic
It would be nice if they factored in the cost of design, development, and manufacturing into that cost. I have worked on consumer electronics projects in the past, and the rule of thumb was adding $1 to the Bill-Of-Materials adds $4 to the retail price. Still it doesn't surprise me that the profit margin is high.
What do you know I wrote a novel
Even if Apple didn't turn a profit on the iPod the benefit to the Apple brand from the iPod has been huge. People will be more likely to by other Apple products because Apple is "cool" again.
Bradley Holt
To pay for the R&D, marketing, etc ... I'm surpised that Jobs doesn't demand a higher return.
I'm wondering if Apple will go the way of Sony. Innovating firms have a tendency to be eaten up by firms who copy and then sell for a lower price. The only way to stop copiers is to create a closed format - basically kill competition before it happens - or to keep innovating to stay ahead of the copiers - easier said than done.
Evil people don't think they're evil. - George Lucas, Making of Ep III
Apple is currently the most innovative computer company around, with an operating system that makes the current market leader look like a dinosaur. The fact that a quarter of their profit comes from a damn mp3 player is just sad.
In a related story, researches have discovered that new home construction costs practically nothing at all, as the wood was taken from trees that were growing there anyway. Wood costs nothing to fabricate, as mother nature provides it for free (given enough time). The foundation is poured from concrete, which is just rocks, sand, and water, all of which are freely available. Thus, new home construction is 100% profit.
Like woodworking? Build your own picture frames.
What about the engineering costs? That hardware doesn't design itself. The software updates don't write themselves.
I'm not saying marketing and distribution are legitimate costs, just that they seem to have overlooked a major one.
I could understand (evil as it may be) Apple wanting to control distribution if they were the top dog in the computer business, but as it stands i think Apple would do well to play friendly with everyone who wants to push Apple products to the masses (iPods excluded, they're all over the place).
Will wank off Linus Torvalds for fame.
With that formula Windows' profit margin is about 99.9%, because CD only costs 10c to make.
As a software professional, I've never been able to calculate real profit margin of any product that contains any kind of a software. Especially in a big company, you got different software modules from different products linked together. For example if software module A costs $500,000 to develop and it's sold with $1000 per license. Then you have a software module B that cost $2,000,000 to develop, and sold $100 per license. Both of those modules are sold separately, but then you decide to use both of their technology to develop a product C. It costs additional $100,000. All of those modules continue to sell separately. What is profit margin of product C? Do you count in only the $100,000 or that part of A and B, which haven't been covered by license sales? What about company's administration costs, marketing costs, etc.
And that was an extremely simple example. Old company has thousands of software modules, all linked to each other in some way. You can never really point out the actual cost of a product in software business.
My point is: The only way to know the real margins of a product, is to see how good salaries are in that company (as long as it is profitable)
PS. I bet iPod family's UI design has cost ten times more to develop than any other competitor's product's. There are countless number of factors that you can't even imagine when considering those margins. (But as a software manager, I consider it an advantage. No matter how bad failure a development project is, you can always trick those business directors to believe that it actually was a success. You'll just sweep those man-months under the carpet (of some other project/product) and say you used a software module that was developed by other project.)
For your illustration to work, you have to assume the iPod only works with iTunes. I won't list them here, but there are several other third party apps that people can use to transfer stuff to their iPod with.
So... it is the same as with scanners. Apple bundles their own software that they developed, but you're free to use whatever other program you find that can speak to the iPod.
Duct tape is like the Force. It has a light side, a dark side, and it holds the universe together.
Here is a primer on business terminology.
Revenue = total amount of money the business brings in through sales.
Cost (of manufacture) = cost to actually manufacture or acquire item. Includes labor, factory and raw materials.
Margin = Revenue - Cost. (for most corps around 40-50% of revenue - less and you go out of business)
M&A = management and sales costs.
R&D = R&D Costs.
Profit = Revenue - Cost - M&A - R&D - Borrowing Costs - Other Transactions.
Profit for most corps runs 5-15% of Revenues. Less and you are in big trouble.
Note Profit does not equal Revenue, Revenue - Cost or Margin. All of these are MUCH greater than Profit. Profit is the revenue the company left after paying off everybody.