It Costs $326.60 To Make An iPad 2 -- Why That Matters

steve jobs, ipad 2, thin , march 2011

Photo: AP

IHS iSupply, a company that specialises in these things, has torn down the iPad 2 and says the components in each one cost Apple $325.60, DigiTimes reports.This is called the bill of materials cost, or what it costs to manufacture the device, and doesn’t include things like shipping, inventory, retail, not to mention marketing and R&D.

One interesting finding is that the A5, the chip that powers the iPad 2, is 75% more expensive than the A4 that came with the first generation iPad. The cost should come down fast as production ramps up, because Apple is only paying for manufacturing, since it owns the intellectual property.

The iPad 2’s battery is also slightly more expensive, because it’s thinner yet has the same performance as the original iPad’s.

What does it mean?

  • Apple must be barely breaking even on the $500 iPads. This is speculation, but we’d be willing to bet good money that the only way Apple makes any money on these overall is thanks to the Apple stores (online and retail), where it doesn’t have to give retailers a cut; this is a big reason why it’s so hard for Motorola and Samsung to build tablets that are price-competitive. It’s also very smart of Apple because it’s grabbing marketshare aggressively by undercutting on price, very unusual for the company—while still probably making higher profits than competitors on iPads overall thanks to the higher-priced models.
  • Making its own chips just keeps paying strategic and financial dividends for Apple. When it acquired chip-designer PA Semi it was mostly thought to be for technical reasons, to be able to have chips precisely tailored to its software and power requirements. This was almost certainly a big part of the decision. But another huge factor is that it can make chips for much cheaper unit costs, since it only pays for manufacturing. Similar chips from Intel or an ARM manufacturer (ARM licenses designs and doesn’t make chips) would, on top of not being quite right for Apple’s devices, be more expensive. 

For historians of the technology business, it’s startling to see how much what hamstrung Apple during the PC wars—vertical integration—is what keeps paying dividends in what indeed increasingly looks like the “post-PC era.”

Don’t Miss: iPad 2 Extends Apple’s Lead: Apple Will Dominate The Tablet Market For Years →

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