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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
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.
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.
Price gouging? It's a luxury product. Does that concept even really apply?
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.
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!
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
Of course it does. It is just like someone overcharging for plywood and batteries as the hurricane bears down. People need these iPods, and they need them now, and competitive products are not available. Apple execs should be put in jail for this immoral behavior.
Business Week:
After taking apart the nano, iSuppli estimates that all the parts inside cost Apple $58.85 for the $149 modelI've met too many stupid people in recent times, so I think my sarcasm detector broke. Either you're really funny (and sarcasm is nearly too subtle for me) or somebody should make disparaging comments about your iq.
Either way, good job.
Gravity Sucks
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."
"It is our blasphemy which has made us great, and will sustain us, and which the gods secretly admire in us." - Zelazny
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.
You are completely wrong in every sense ...oh my god,,,is that steve?!... OMG I WANT YOUR BEBIEZ!!!111.....like I was saying Apple makes great products, and they are always dedicated to improving the design interface and technology associated with those products. Apple takes approx.. 2 years from start to finish in creating and working to perfect every detail. I am sure they have some crazy things that they are holding back, but what sets apple apart is that they won't release something until they have it polished. Companies that do that always do well.... Blizzard has had that mentality and it has done very well for them as well.
MS and most other companies, tech specifically, have no clear vision on what they want to do... this is where jobs...OMG DID SOMEONE SAY JOBS!!! I WANT YOUR BEBIEZ!!11!....is better than most CEO's. He has a very clear vision for his products and his company. They focus on the product and and do it VERY VERY well. Then they improve on that product on each generation tweaking and making it better and better.
Video on the ipod nano is new, and it is the SAME resolution as the larger ipod video predecessor. They unleashed a touch interface that is MILES ahead of everyone else in the industry, and yet they somehow are "holding back". Flash memory is expensive, and once the price for it comes further and further down they will make larger storage space available for these already small form factors.
Notice you used the word "I" a lot in you rant, there is a clue for you, despite what you may think your preferences are not absolute measures of quality. Everyone has different tastes, neeeds, budgets etc. Just because YOU don't see value in a particular product doesn't mean it sucks, it means that it isn't right for you. Buy something else and move on, or I guess since I bought an iPod I am too stupid to judge you....
Monstar L
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. ;)
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.
D6 63 0D 70 89 81 BB 8E 7B 7C 5F 5D 54 EA AB 73
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!
As someone who has worked behind the scenes of pricing a product more times than I can recount, here are some things to note: 1. Price almost never depends on cost anymore. Pricing is more likely to be a variable of "What the market will bear." If Apple found out tomorrow that customers were only willing to pay $101.95 for an iPod Nano, that's what they would price it at. 2. What is the breakdown of cost for most products that involve creativity and many individuals: The initial brains to bring the product together: translates into salaries for top talent Bunch of CEOs, marketing analysts and other number crunchers to assess profitability of product (more salaries) The look and feel of a product (more salaries to designers) Packaging (all that paper that the iPods cost in are printed paper with sparkly bits and pieces attached) Marketing (salaries for marketing and advertising firm plus the cost of advertisements across various media platforms) Storefront (montly rental of those prime real estate spots Apple occupies is pretty hefty) Sales force (that goes and sells into outlets outside of Apple storefronts; more salaries) So, in the final analysis, much of the money after the initial salaries to the brains that developed the product goes into salaries for other people who package, market, advertise, sell and merchandise the product.
I don't know why people keep listening to them. Time and time again, they report margins of >50%, and time and time again Apple reports their usual margins of 20-35%.
So... by your reasoning, people that buy iPods, iPhones, what-have-you are not acting rationally? Which begs the question: Who made you the barometer for rationality? Or the authority on what's "better" as well?
If the product -what ever it is, is over-priced, people won't buy it.
I guess Apple's products are really well marketed, because people think these 200$ USD devices are luxury products :)
I guess Apple's products are really well marketed, because people think these portable music players are not :)
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.
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!