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Basic iPad mini carries $188 BOM, says IHS report

Posted: 08 Nov 2012 ?? ?Print Version ?Bookmark and Share

Keywords:iPad mini? NAND Flash? Kindle Fire HD? Nexus 7? tablet?

According to a preliminary estimate from the IHS iSuppli Teardown Analysis Service, the base model of Apple Inc.'s iPad mini with Wi-Fi only and 16 gigabytes of NAND flash memory carries a bill of materials (BOM) of $188.00. After adding in $10.00 for its manufacturing expense, the total cost to manufacture the iPad mini rises to $198.00.

Using the ratio of cost to retail price, IHS found that the iPad mini is slightly more profitable on a percentage basis than the comparably equipped version of the 3rd generation iPad when it was released in March 2012.

Andrew Rassweiler, a senior analyst at IHS' teardown services, said that Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products. The company's strategy entails offering differentiated hardware that justifies higher price tags than comparable products. This differs markedly from Amazon's 7-inch Kindle Fire HD and Google's Nexus 7 tablets, both of which are essentially low-margin or no-marin giveaways at a $ 199.99 retail price. Apple makes healthy margins on its hardware, while Amazon and Google employ different strategies with their 7-inch tablets.

Figure 1: Preliminary Bill of Materials and Manufacturing Costs for the iPad mini with 16GB of NAND Flash and Wi-Fi Only (Pricing in U.S. Dollars)
Source: IHS iSuppli Research, November 2012.

Amazon's Kindle Fire HD and Google's Nexus 7 have set new consumer pricing expectations for 7.x-inch media tablets, starting at the $199 point. These low-priced tablets pose a competitive challenge to Apple's media tablet dominance.

"Amazon and Google want to put tablets in consumers' handseven if it means doing so at a minimal hardware profitwith the intent of making their money on the content users buy, and/or the advertising and paid content they will be exposed to by buying the devices," Rassweiler observed.

With the iPad mini, Apple continues to garner even greater profits from sales of the higher-end tablet models that have greater amounts of flash memory. Because Apple provides consumers no option to expand the iPad mini's storage capacity with any sort of removable memory card, the only way users can upgrade the amount of flash available on the product is to buy the higher-end 32GB and 64GB models.

These higher-end modelswith or without 4G wireless capabilities- are priced at $100 intervals, at $429 and $529. However, the incremental cost of the additional NAND flash memory to Apple is only $9.60 for the additional 16GB of memory and $19.20 for an additional 32GB of memory. This means that compared to the 16GB model, the 32GB version of the iPad mini generates about $90 in additional profit for Apple for every unit sold. For the 64GB model, Apple's profit is about $171 higher than the 16GB version.

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