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Inside the Third Gen iPod Nano
ahess247 writes "When the leaked photos of the 3rd-gen iPod nano first hit the Web it quickly took the nickname 'little fatty,' but fat could be better used to describe Apple's profits on the project. BusinessWeek reports that a teardown analysis by iSuppli finds that it costs Apple only $58.85 to build the 4-gig iPod nano, and $82.85 for the 8GB version. The analysis also reveals some of Apple's suppliers, about which it is usually very tight-lipped. Synaptics is back as the supplier of the click-wheel technology, beating out Cypress Semiconductor which had it previously. Also of note: The same Samsung CPU chip that powers the video and audio in the nano is being used in the iPod Classic as well."
You mean an Apple product is overpriced?
When you have a better analysis of what it costs to develop the software, the amortized cost of engineering and other non-hardware costs (marketing, managing, distribution, etc) so that we can see a margin. Those numbers (58.84$) are totally irrelevant and only serve to misinform. Sure, you could buy the pieces that price, but for what it's worth...
Of Code And Men
Are not all that go into the final street price. You got R&D, Marketing, Logistics.. Steve's Salary...
---- Booth was a patriot ----
The price of a product only relates to the price of its components to the degree that the maker avoids taking a loss. I keep having to explain this to people. Adding a $50,000 extension to your house doesn't increase its value by $50,000; in some cases it could actually decrease the value. iPods are just jewelry (why else would there be a special U2 edition?), and the last time I checked the mark-ups on jewelry is way higher than any margnis that Apple would dream of.
Nothing for 6-digit uids?
Companies create and sell products in order to make money!
It is neat to see that the Nano has the same guts as the "classic" now, though.
Many of the numbers iSuppli comes up with are pretty much made up. Regardless, most news organizations assume that the entire difference between retail of the device and the iSuppli number is "pure profit," etc. - this is utter nonsense. Previous iSuppli numbers have been shot down by reason, I hope to see the same thing in this instance.
Yeah, the v3 Nano is cheaper to build. Its also cheaper to buy, with a 4 GB unit now $150 and $200 for the 8 GB, as opposed to 2 GB for $150, 4 GB for $200, and 8 GB for $250.
Test your net with Netalyzr
Someone sounds jealous... heh... It's easier to tear down someone else's ideas than create new ones yourself.
Where are the anguished cries over excessive profit margins? Oh - never mind - that's only when it applies to Microsoft!
You mean an Apple product is overpriced?
That's one way to look at it, in the context of the whole marketplace. Another way to look at it is that they've priced it according to the amount people have told them they're willing to pay. So if it were cheaper, it would be underpriced for that particular offering from Apple.
The theory of relativity doesn't work right in Arkansas.
That's a large gross margin by any metric since the thing sells for almost 3 times as much as it costs to make, assuming the numerbs are correct.
Am I supposed to be shocked that there's a significant markup beyond the price to assemble the product? Don't, for example, the retailers need to make a profit (and yes, Apple is one of those retailers, which is why they have a store)?
If you are going to stir us up why not include the costs and markups of other products as comparison? Do you have any idea what the markup is on clothing for example (easily 1000% or more, depending on the label)?
Isn't capitalism about charging what the market will bear? If the price is too high it won't sell, and if you prefer to pay less but still want an ipod there are plenty of options (Apple's refurbished store sells last year's model with warranty for about 60-70% of the price)
And no, I don't own an iPod and have no particular allegience to Apple.
From the referenced article:
"ISuppli's estimates don't account for nonhardware costs, including software development, intellectual property, packaging, final assembly, and distribution."
and
"When you look at all these other costs, which you can't see from a teardown, then you begin to see why Apple's gross margin tends to be in the 30%-to-35% range historically."
Just to save folks a trip and an excuse...
As is usual in such things, the cost of the hardware itself is not the majority of the cost of the device.
Everybody gets what the majority deserves.
The summary is not correct. The article is talking about the cost of the parts, not the cost of producing the iPod. There can be much more to the cost of development than just the cost of the parts. For example, what is the cost of developing software? Obviously it's much more than the cost of the physical medium.
When YOU can build one for $58.85, then this becomes relevant. I couldn't build one for $5885.00 without hiring somebody else to do it for me.
Does iSuppli count the massive advertising campaign on TV? I see about 10 commercials a day on TV and that's just on couple of channels. Stretch it out over few networks and now you're talking serious coin. How about print advertisements? A full page ad in few dozen mainstream magazines isn't exactly a small investment. What about billboards? iPod revenue gains are offset by the media blitz which I don't see other manufacturers doing.
I bet the actual cost of Nanos is a lot closer to 100-110 dollars per unit once you account for marketing expenses, support costs, and R&D.
But lets, for the sake of argument, assume that Apple does take $70 profit from each (lower-end), and $120 (higher-end) iPod nanos. Why is there a controversy about this every time this topic comes up? There is a market for it and the majority of the market is willing to pay the price. How is it in Apple's interests to commoditize its products? Or for that matter in market's interest? Samsung and Creative are dominating the sub-$100 display DAP space. I think it would be bad for them to have Apple in that bracket with a display MP3 player. It would just murder all the smaller manufacturers who are competing with Apple on price. Apple is doing everyone a favor by pricing its products a little higher to allow for healthy competition in the third tier.
except for Apple ownership. Each person needs to decide if the retail price represents a good value to them personally. If it doesn't, don't buy it. It doesn't matter if it costs Apple 1 cent to manufacture the product. Thus is the nature of freedom. They can ask whatever they want, and you can pay it or not. FYI, the same thing applies to your salary.
R&D: $10 000 000
...
Marketing: $25 000 000
Logistics: $5 000 000
Steve's Salary: $1
Bringing a new iPod to market: $40 000 000+
Having your CEO cost less than your annual paperclip budget: priceless
Most things money can by; and if you have enough of it: you probably buy Apple.
**AA: a bunch of mindless jerks who'll be the first against the wall when the revolution comes
Man, they must be losing a lot of money. All the ads I see for them say, "Free ipod nano!"
Maybe they're hoping to make the money back in itunes sales?
Ex-Mosad guy who strangles people with iPod cords? Dude, you're so paranoid even the Shin Bet will feel no need to touch you!
It's pretty cramped here in this iPod Nano.
Knowledge is power. Knowledge shared is power lost.
Too bad I dropped off the fence a bit too soon, but I did have to do some long flights and radio plays were a great help passing the time. I picked out a video iPod without realising it's meant to watch videos as well as play music. Considering battery life that's a bit optimistic. Perhaps thirty minutes of video and the battery is well gone. Listening to mp3s it can go for several days, though already the battery after 9 mos. is showing a decrease in life.
I was a bit shocked when my brother pointed out all the features of mine. All I ever do is listen to radio plays and have a collection of under 100 tunes ripped from my CD collection. Rather than have the battery sucking display, I think I'd rather have more battery life.
Around Dodge City and in the territory on west, there's just one way to handle the killers and the spoilers and that's with a U.S. Marshal and the smell of gunsmoke.
A feeling of having made the same mistake before: Deja Foobar
SEriously, they'll sell you, an iPod with a good capacity (160gb) OR an iPod with Wifi OR an iPod with a touch screen.
Yes, they could sell you a product with all the features you want, but they'd never be able to go for another 4 generations with no new innovation. I'm sorry, but I prize my features for the mp3/4 player over cutting another 1mm off the back of the case. All 3 of these iPods are small enough to integrate and get a killer product. So why aren't they making one other than they can milk each product separately without giving the consumer what htey want.
Does it really surprise you that whilst they are doing this rediculous cut-our-product-in-3-and-sell-them-all-for-the-original-price scheme that they are also taking huge cuts from the overpriced products.
Sorry for the rant, but I can't stand it when companies deliberately hold back, and i find it worse when a company like apple, which everyone loves (i have no idea why, just not being as bad as MS isn't enough) rubs it in people's faces, and people are still shouting OMG STEVE I WANT YOUR BEBIEZ!!!111!
Business Week:
After taking apart the nano, iSuppli estimates that all the parts inside cost Apple $58.85 for the $149 modelIn related news, iSuppli recently released figures showing that it costs Adobe only $5 in parts to package the newest version of Photoshop. With a retail price of about $600, that results in a profit margin of over 10,000%! Analysts estimate that with such high profit margins, Adobe will be making a hefty profit this quarter . . .
There's also the retailer's cut. Retailers taking 60% of the final price is not unheard of.
I usually stop reading when I see "iSuppli."
I purchased a 3rd gen Nano for my wife. She is very pleased with it. She even manages to watch some of her favorite TV shoes on it. It might be slightly wide - but it is very thin. Our only complaint is the dozens of bugs. However, these all appear to be software based so hopefully most of the annoying ones get fixed soon. How hard is it to code something like coverflow? Please forgive me if I'm wrong - but that feature is by far the most buggy. I also can't say too many nice things about iTunes. Is apple trying to make it suck on purpose? That's what it seems like to me.
Including it's shortcomings we are happy with it overall. Being able to personalize the player by engraving the back actually was a selling point. It takes a dumb electronic device and turns it in to a sentimental keepsake.
Like parent says, when you buy any electronic gizzmo you're not just paying for the parts. You're paying R&D costs, distribution costs, profit for share holders and the stores etc.
It is quite common for electronic products to sell for apperox 5x the cost of the raw components.
Engineering is the art of compromise.
You're not offering offer a fair analysis of an economic situation if you reason about it axiomatically, from an impoverished set of axioms that assume that the parties to every exchange are perfectly rational, that what they value doesn't change by the act of purchasing, and that they possess perfect information. All you're doing is demonstrating that you have an unempirical adherence to the axiom that trade only happens because both parties wanted the trade to happen, and that whenever you see some situation that contradicts it, you will reject the existence or straightforward description of the situation.
You can always preserve your belief in a given claim by refusing to believe the things that would contradict it.
Are you adequate?
btw, this new iPod is quite nice, if I didn't have a new iPhone, I'd go buy one straight away.
--
Sammy / with iPhone
Did they include the costs necessary to pay the legal department for the forthcoming non-replaceable battery lawsuits?
For years now every so often I take a look to try to find an mp3 player that natively runs off AC power. Everything is either designed to run off batteries, stream from a pc, or plays off a cd. I want to have an mp3 player in my woodworking shop. The life expectancy of a cd player in there is about 3 months. I don't particular want to try a pc there either, and it's completely overkill - I use enough juice in there as it is. Running 8-10 hrs a day every day constantly recharging a battery is going to kill the battery. Why isn't anyone making a simple mp3 player that just has a hdd or flash storage that is designed to be a stereo component? When I search all I find is people like me looking for the same thing.
Speaking of which -- on those pictures, I see no Samsung CPU as the summary stated. The only major Samsung chip I can see is the flash chip.
It may not be the answer you'd like, but I'd say that if such an MP3 player does indeed exist, it would probably more or less have to be some kind of PC anyway (otherwise, there'd be no point in even making a "large" one, if one could suffice with a portable MP3 player constantly hooked up to the power jack). So if you're going to get one anyway, why not just resign yourself and use a retired PC? It's not as if it would be more expensive than buying any sort of dedicated, AC-hooked MP3 player anyway.
Just let the battery die. My iPod Shuffle's battery has died, but it still works fine on external power.
Well there's a lot of dead space inside a dvd player too. Digital has replaced cds for most of us. It just seems very strange to me that there is no mp3 "component" for stereos. They could even build a CF/SD slot directly into the receivers.
I suspect there's also a feeling with manufacturers that by selling you a portable they can get you to keep upgrading it, whereas a component is something you tend to buy once. Still, with the ipod dominating the market you'd think somebody would try to carve out their own niche.
You got it wrong. You should have posted it into the "Emoticon turns 25" story. In that case, your post wouldn't have been offtopic. ;)
'i' stands for an idiot (according to Jay Leno)
You keep saying that, but I doubt you mean plain. Do you mean like with salt and butter, or cream and honey, or apple sauce and cinnamon, or what?
I like all of the above. Except for the plain.
Get a plug in adjustable DC power supply, open the MP3 player case, remove batteries, see the connections, figure out which is which, get out the soldering iron and add some leads. Strip the other ends, put on the power supply terminals, turn knob to correct voltage. Oh ya, close the case after first making a tiny notch for the wires coming out and add a dab of glue there to seal it back up..
complexity-small to medium (mostly tiny stuff)
difficulty - not hard
estimated time for mod-perhaps one hour
easier than making really smooth and tight dovetails
I've done this with several battery powered gadgets, for instance, the latest one I did, is a family radio service "base station" that doesn't need expensive batteries. Got one of those "two packs" for cheap once, needed one at home, then I carry one out in the field when I am working, the old lady can yammer at me if she needs something and leaves it on all day long no harm nor foul.
It's just an opinion, but Apple's marketing power seems to be the most amazing feature of the new iPods...I really don't see anything in the current lineup - especially the nano - that makes them interesting technologically. iRiver, Creative, etc etc have comparable, and in my opinion, better players in the 2-8GB range...yet I see 20,000 iPod stories to every non-apple PMD one. Granted, they've released some impressive, slick hardware at various points, but geez, the 4GB nano has a smaller screen and bigger body than the iRiver clix2, yet I've seen two photos on Engadget for that, and almost nothing anywhere else. Does having a big customer base or a first-rate marketing department make the hardware or software any more interesting? I don't think so. I guess I'm in the minority, as I can't make it through the day without seeing iphone and ipod all over my news reader anymore. I'm bored.
Microsoft has like a 70% profit margin on Windows, which on a technical level is a product that doesn't even work. How much better would Windows be if Microsoft had only taken a 25% profit on it? Why don't we ever hear complaints about that?
The cost-of-parts teardowns of Apple gear are tiresome. They don't take into account the cost of software development or product design, let alone warranty fulfillment and legal and localization, shipping, retail sales, demo units, so much else goes into a product like this other than just a bag of parts. Most of the work that brought us the new iPod nano happened inside heads at Apple. And being a publicly-traded company, you can plainly see what Apple's profits are, and they are always 25-30%. That includes really high-profit sales of software such as Final Cut Pro, and really low-profit sales such as personal computers. Yeah Dell wants that margin but they're not willing to work for it, they gave up all the high-profit software parts of their business to Microsoft. But when you combine Microsoft and Dell's profits on a PC purchased from Dell it matches up to Apple's profit on a Mac.
Why do the vast majority of all music players ever made suck so much if all you have to do to make an iPod is buy $85 in parts and hire someone to put it together? Why didn't the iPod nano with video come from Microsoft six months ago as Zune 2 while Apple was doing the iPhone? $85 is less than what Microsoft pay per unit to fix each Xbox.
And calling Apple a monopoly in music players conveniently ignores not only that there are hundreds of brands of music players but that every large manufacturer other than Apple is part of an anti-consumer cartel led by Microsoft, a convicted abusive monopolist. All the other music player manufacturers have tied one of their hands behind their backs and chained the other one to Microsoft. They are a failed monopoly that left one honest competitor with a exponentially better product.
The FUD that is going around today is just amazing. For the same US$149 as an iPod nano with video, you can buy a remaindered overstock Zune, one year old, sitting in a box with the battery aging, and from a two year old design, and requiring you to BUY another Microsoft product (Windows) just to make it work, and man that thing is HUGE.
I'm sorry, but you seem to be having a problem understanding the meaning of the phrase "product X is overpriced". When people say "product X is overpriced", they are obviously not disputing the fact that product X might be sold at the price at which it is sold. What they are saying is that "people who buy product X at the current price either have incomplete information, or they are acting irrationally". In fact, it is often the buyers themselves that later realize that when they get more information.
Often a property and the land will sell for more when sold together. This is just one example where sum of the individual components is not necessarily the sum of the package and people love fancy packages.
Another example would be the people who sell the components. Each component will (if the business has some good accountants, management, and engineers, or 100,000,000 trained monkeys ) sell a product for a profit. This is how business work. I am not saying it makes sense but that is how they work generally. There are exceptions to the rule.
Work + some logic = Profit
Did they include the costs necessary to pay the legal department for the forthcoming non-replaceable battery lawsuits?
http://www.apple.com/batteries/replacements.html
non-replaceable has been fixed.
The truth shall set you free!
I just went through that link and they shot NOTHING down with reason. It's mostly a rant by the overzealous mac owner, his only reasons were that isuppli's work didn't seem to make sense based on his preconceived notions and poor comparisons between apple's company wide reported margins and specific product margins reported by isuppli.
For example, he was simply refusing to believe that the iphone cost $286 to produce and the price of the unit was $599. Yet, the massive price cut just one month after he posted his article/rant makes isuppli's numbers seem credible. $399 for the same 8 gig iphone just months after release, damn right apple was making a massive profit.
That site makes no attacks on isuppli's methodology or process as the site owner is probably unaware of how they do things. iSuppli has a great reputation from manufacturers and they're numbers usually stand to reason.
Reading that website post iphone price drop makes it seem even more ridiculous in it's criticisms of isuppli.
Hmmm... Pie...
I don't know why people keep listening to them. Time and time again, they report margins of >50%, and time and time again Apple reports their usual margins of 20-35%.
So... by your reasoning, people that buy iPods, iPhones, what-have-you are not acting rationally? Which begs the question: Who made you the barometer for rationality? Or the authority on what's "better" as well?
If the product -what ever it is, is over-priced, people won't buy it.
I know that you were modded troll for your explanation, but damn... you hit the nail EXACTLY on the head:-) Very well done sir.
There is one thing you are forgetting, my dear AC. Microsoft TELLS it's users that they are getting screwed over. Apple attempts to hide it underneath a shiny, plastic exterior.
Living With a Nerd
Parent's links are way more informative than the apple.com links from the original post. To bad i runned out of mod points.
as then they'd have nothing to announce when the next round of updates come along.
New version of hardware is introduced, then there's a series of updates where RAM/HD is increased, whilst surrounded by the new hardware.
I'll pay you $58.87 and you'll build me an iPod nano, right? Yeah, right... thought so...
Steve's Salary: $1 ...
Jobs underpays himself in income for the very same reason that the honchos at Google and other similar companies lowball their income. Were they to receive significant income, they would pay a progressive tax rate that topped out in the mid-30% range. By "settling" for tiny salaries but massive option grants and holding on to their purchased equities for more than a year, they pay only a non-progressive 10% long-term capital gains assessment. If they incorporate in a tax-dodge country like Ireland and receive income in respect of patents and copyrights owned by them and assigned to their companies, then they manage to pay virtually no tax at all. And the "$1" salary of course makes for great PR. Make no mistake though, Apple's shareholders have "paid" Jobs and others several hundred million dollars in terms of a dilution outstanding equity through repeated option granting. When these options have been back-timed to conincide with price drops, Apple shareholders have paid out even more.
Da Blog
Did you even read your link? The user still can't replace the battery. You send it in to Apple, pay a high fee, and don't even get back the exact ipod you sent in.
You're right, it's 15% (unless you're in the lowest bracket, when it's 10%). The rate's going up to 20% within a few years (barring legislative action).
Da Blog
Great point that I missed. Digging down two more pages brought up this tidbit.
"If your original iPod was custom laser engraved by another company, your replacement iPod will not be personalized. "
If I paid extra to put a custom laser engraved logo on the case, I would be ticked. On the other hand if mine had lots of scratches and dings, getting a fresh case is a bonus. A new hard drive without the wear and tear would also be nice if the new drive came with a new warranty.
The truth shall set you free!