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The Profit Margin on the iPod nano 246

Posted by Zonk
from the white-gold dept.
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.'"
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The Profit Margin on the iPod nano

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  • by op12 (830015) on Friday September 23, 2005 @09:11AM (#13628753) Homepage
    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.
    • Engineering costs? (Score:5, Insightful)

      by Anonymous Coward on Friday September 23, 2005 @09:28AM (#13628863)
      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.
      • by Total_Wimp (564548) on Friday September 23, 2005 @09:49AM (#13628997)
        Engineering and development costs per unit get smaller and smaller as more units are sold so they can't be predicted on a per unit basis until we know more about sales numbers. The article says Apple has sold 16 million iPods in the first nine months of this year and based on the rave reviews of the nano and the huge yearly growth of the iPod market, we might expect to see numbers like that for the nano alone next year. If that's the case, engineering costs per unit will likely dwindle to an insignificant figure. That is unless you expect that those costs have greatly exceeded, say, 16 million dollars.

        TW
        • by hackstraw (262471) *
          Engineering and development costs per unit get smaller and smaller as more units are sold so they can't be predicted on a per unit basis until we know more about sales numbers.

          OK, how about quality control then?

          My experience with iPods is about zero, but I have heard from a number of online places where they talk about how great XYZ MP3 player is better than an iPod because it does ABC that the iPod does not do, but then they say that it was a PITA that the device only worked a couple of months.

          Ever buy a h
        • They have sold 21 million of these. Lets say Apple is totally out of control and went nuts and spent one hundred million on design. so it's like five bucks each on enginerring. But I'll bet much of the design work for the internal software andother parts is the same as in the other iPods and of course iTunes is not new for the nano. I'd bet between four anfeight bucks per unit now and it goes downwith each unit sold. Other costs are for things like warenty and technical support
      • Those are fixed costs not variable that doesn't matter too much when you sell million of units.
      • by BasilBrush (643681) on Friday September 23, 2005 @09:51AM (#13629015)
        They're not part of the gross profit margin. They are fixed costs. The same whether they sell 100 or 100 million nanos.
      • by soft_guy (534437) on Friday September 23, 2005 @10:33AM (#13629327)
        Yes, that's why they need to double the materials price. They *do* generally have to pay for things like:
        - The contract manufacturer's profit
        - Shipping (although sometimes the contract manufacturer pays for this)
        - Marketing, advertising, sales promotions
        - Warranty repairs/replacements
        - Returned units
        - Keeping the retail stores open and paying the people there
        - Engineering costs
        - Other fixed costs of running Apple (keeping the lights on at 1 Infinite Loop)
        - Steve's turtlenecks don't pay for themselves :-)
    • by Alex P Keaton in da (882660) on Friday September 23, 2005 @09:41AM (#13628941) Homepage
      It doesn't say what the wholesale price is... Who is making the profit, the reseller/retailer of Apple. If Apple is wholesaling them for $110, their profit is different than if they are wholesaling them for $150...
      • Wholesale is in the $140 range. Apple resellers don't make much on the hardware, but rather the accessories. That's why the salesmen will insit that you get the accompanying carry case or widget to go with it.
      • i work at best buy, and i can tell you the employee price on the nano and all other ipod products is exactly the same as the customer price. it's significant considering the employee discount at best buy on any item is the store cost + 5%. best buy doesn't sell ipods for the profit, they sell them to get customers in the store in hopes that they'll buy other things at the same time. the margin on accessories is so high because that's where the stores make their money.
    • by Junior J. Junior III (192702) on Friday September 23, 2005 @09:41AM (#13628943) Homepage
      Hold on, what about R&D costs? What about advertising? What about support, warranty, and RMA costs? I bet that 50% over manufacturing costs doesn't actually go all that far...
      • Hold on, what about R&D costs? What about advertising? What about support, warranty, and RMA costs? I bet that 50% over manufacturing costs doesn't actually go all that far...

        You'd be surprised. Did you know that the average computer store loses money on the computers they sell? Not only is Apple making money per unit (a good thing!) They have attachments [apple.com] attachments [apple.com] attachments [apple.com] attachments. [apple.com]

        Did I mention they have attachments? [apple.com]

        Their margins on the iPods are pretty good. Their margins on the att
  • by troon (724114) on Friday September 23, 2005 @09:11AM (#13628758)

    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.

    • by ChrisF79 (829953) on Friday September 23, 2005 @09:23AM (#13628834) Homepage
      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.

      Those costs would be included in Overhead, which is below the gross margin line on the P&L so they are likely not included. There's a lot in between gross margin and net margin.
    • I would be surprised if Apple owned the fab plants that built the frames. Apple probably buys all the parts to spec and then assembles them. Assembly plants probably are not that complicated and perhaps can be shared with earlier iPod plants.
  • by Anonymous Coward on Friday September 23, 2005 @09:12AM (#13628764)
    Is it an "impossibly small" margin?
  • by EggyToast (858951) on Friday September 23, 2005 @09:12AM (#13628768) Homepage
    Sure, parts cost that much. Does anyone honestly believe that the rest of that is pure profit?

    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.

    • Bingo, you have it spot on. The article is a gross simplification of the nano's manufacturing.
    • by TeamSPAM (166583) <(flynnmj) (at) (email.com)> on Friday September 23, 2005 @09:26AM (#13628849) Homepage

      I would agree with the parent. The only hardware that seems to be sold at a loss are gaming consoles and cell phones. The console makers do it because they assume they will make up the loss on game sales. The cell phone makers aren't selling at a loss, it is the providers that base the loss on the length of the contract. And the providers only seem to be giving the crappy phones away. The good cell phones will still cost around $200. Profit on the hardware is why Apple won't offically release a version of OS X for generic x86 hardware. There's not enough money in it for them if the hardware sales are missing from the equation.

      • To be more accurate, game consoles are sold at a loss. Cell phones are not sold at a loss. Verizon and Cingular may sell them to the customer at a loss, but they're not the ones building the phone. Nokia, SE and Motorola do not sell them at a loss.

        If you're talking about physical goods sold at a loss by a third party service provider, there are lots of other examples beyond cell phones of that -- satellite resellers, some of the "free PC" companies, the satellite radio companies, etc.
      • Forgot a Couple (Score:2, Insightful)

        by lbmouse (473316)
        How about printers? HP makes money off of toner sales, not printer sales.
         
        This same type of logic applies to other sectors. Just look at Gillette. They basically give their razors (Mach 3, etc.) away at cost knowing that you are going by replacement blades at some point.

        • Re:Forgot a Couple (Score:3, Interesting)

          by NewNole2001 (717720)
          When I graduated from High School back in 2001, Gillete sent me a Mach3 and a single razor cartridge in the mail for free. My friends and I have talked about this and we all agree that whoever decided to do this ought to be deified within Gillete due to the sheer genious of this. I used that same handle up until two weeks ago, when I bought one of their new Mach3TurboSuperDuperNowWithBuzzing or whatever its called, because I wanted to try it out. There was nothing wrong with the old one though, but becau
    • by Zangief (461457) on Friday September 23, 2005 @09:35AM (#13628907) Homepage Journal
      R&D does cost, but the cost of it cannot influence the price you set for your product, because R&D is a sunken cost. They already spent the money, they want to recover it, but what they have to do now is to optimize the production line, and that means they have to optimize how much it costs to produce ONE iPod.

      The article also mentions US$8 as the assembly cost.
    • thats why its "gross profit margin". everything else is counter as OpEx.
    • 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.

      Copyrights are cheap around $30 per application and patents are roughly $650 per patent application (plust a $100-$150 filling fee) with an average $1,000 every 7 years to maintain... That might be exspensive to a small business but $5,000 or so for every patent for 17 years is a steal for a multi-million dollar company.

      However,
    • When Apple first released the original iPod [slashdot.org], a lot of people observed that for $400, you could buy a 5GB iPod, or the tiny 5GB HD that's used inside the iPod. But the iPod also included two processors, a screen, user interface controls, a firewire interface, a battery, and a cheap pair of earphones. So at the time, no, it appeared that Apple was not making any particular profit selling iPods, and at that rate they were never going to recover their design and engineering costs.
  • by xtal (49134) on Friday September 23, 2005 @09:13AM (#13628773)
    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.
    • by AGMW (594303) on Friday September 23, 2005 @09:39AM (#13628931) Homepage
      No input on the Nano is crummy, but it's form factor makes it much more likely I will take it someplace.

      My wife just got a 6GB iPod Mini and it's terrific. Also picked up one of them iTrip doohickies too, and it's excellent for using in the car. Shame it's illegal in the UK really!

      Now what with more and more (top end) car manufacturers building Bluetooth into their cars for Hands-Free Mobile use, using the Stereo, why not have a "bTrip" (er - "iTooth"?) that connects automatically to the car Stereo as well. That'd sure be neat!

      Build the BlueTooth into the iPod/iNano/iVimto and you presumably don't need the USB connector anymore either! Maybe permit swapping songs with other iPeople on the train etc, or even listen in to whatever other people are playing?

      • BT is not NEARLY fast enough for much song transfer, let alone the fact that you cannot charge over it.

        And Apple is not apt to let iPeople swap their music on the iTrain, as they are pretty big on the no piracy thing.
      • First of all, this is a great idea. A bluetooth add on would be a really nice addition to their product line. Especially as an add on, since lots of people would not need (or want) it.

        One thing I wanted to mention though, I can't really see bluetooth being a suitable replacement for the USB connector. I'm not a bluetooth expert (so someone please correct me if I'm wrong) but as far as I understand it there's two common bluetooth transfer modes: DH5/DH1 and DH5/DH5.

        DH5/DH1 gives a maximum theoretical forw
      • Another reason to hold on ROKR...

        Why not use the bluetooth connection on your appropriately spec'ed cellular phone to download tracks from iTunes to your iPod.

        This gives people the CHOICE to use whatever phone they want, with whatever MP3 they want with whatever Online service they want. (Okay, if you want iTunes, then the iPod is not optional).

        Its a win-win for Apple - suddenly they do not need reseller deals with every Mobile operator in a country to sell their wares.

        My television does not need to be able
      • Oh I would love Bluetooth in the iPod, but it ain't gonna happen anytime soon.

        Main reason being that in North America Bluetooth is still a rarety. Here in Canada neither Telus nor Bell (to my knowledge) offer a phone that is bluetooth enabled. The ony ones who do are Rogers and Fido (well, all Rogers now) and they don't really push that either.

        Same thing with PCs, yes all of the new Macs have more or less Bluetooth built in or at least have it available as an option, but on the PC sector it is still "cheap
      • My wife just got a 6GB iPod Mini and it's terrific.

        I'm glad she is enjoying it!

        Build the BlueTooth into the iPod/iNano/iVimto and you presumably don't need the USB connector anymore either!

        Blue Tooth is too slow. However, there is a thing called "Wireless USB". The speeds on it approach USB 2.0 speeds and it is very similar to wired USB - I think you may be able to use the same drivers as with wired USB.

        Of course, currently we charge the iPod at the same time as the songs are being transferred. Apple may
      • I just bought a new Alpine in-dash cd/mp3 player that is somewhere in their mid- to low-range. Aside from it being hands down the best in car CD player I've ever owned (it simply will not skip, even on 48x burned high-bitrate mp3s at the far edge of the CD), and having the best mp3 playback I've yet found as well as a very good UI - it also has an iPod hookup. It's a "control your iPod from the radio" thing, not just a headphone jack, wherin you get the song displayed on the head unit, you can select song
  • by jockm (233372) on Friday September 23, 2005 @09:14AM (#13628781) Homepage
    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.
  • Apple Brand (Score:5, Interesting)

    by mysqlrocks (783488) on Friday September 23, 2005 @09:16AM (#13628794) Homepage Journal
    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.
    • 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.

      Interesting take really, but I don't think that is entirely valid. Apple is a publicly traded company and shareholders buy on earnings. They must make decisions that will increase shareholder value. Sure, lots of companies sell products at a loss in the short-term for one reason or another, but I really don't think
    • by Shivetya (243324) on Friday September 23, 2005 @10:20AM (#13629230) Homepage Journal
      but I think I am not, I know of no one who has bought any form of iPod who actually bought an Apple computer. Now I know a few Mac users who have iPods.

      What I have seen is that they will most likely buy ANOTHER iPod. The only few who considered buying an Apple computer got immediately turned off by the price.

      It is all about price points. The iPods are doing well now because they are at that magical number of being below $299 and most being $199 and under. Look where the largest iPod market is, it is that lower price range.

      Meaning, if Apple can come out with other items in that range people might just stop and buy, may I suggest a media center type solution. An Apple PVR with more functionality?
    • No, Apple would not be "cool" if they were loosing money on the iPod. Apple would be "a bunch of idiots about to go out of business any day".
  • by Karma_fucker_sucker (898393) on Friday September 23, 2005 @09:18AM (#13628802)
    Historically, Steve [Jobs] won't accept anything less than 20% gross margin on any product," says Creative Strategies analyst Tim Bajarin.

    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.

    • by Ingolfke (515826) on Friday September 23, 2005 @09:30AM (#13628879) Journal
      Innovating firms have a tendency to be eaten up by firms who copy and then sell for a lower price.

      -cough- Dell -cough-
      • Innovating firms have a tendency to be eaten up by firms who copy and then sell for a lower price.

        Let's hope gas stations stick to this plan in the next few days.

      • Its worth noting that Dell's original build-to-order production strategy was very innovative in the early 90's. They had an efficient production line that saved money by maintaining low inventory. They have since abandoned this process because their volume is too large. Now they save money by being the Wal-mart of their industry and squeezing every cent out of their suppliers.
        • I think Dell's operational model and manufacturing model are quite innovative... but their whole model is to be a technological follower and a operations innovator. They wait for a product to establish itself, and then duplicate it using an extremely efficient production process.

          Walmart is the same way. They're not out to set trends in clothes or sell the latest high end products, their out to sell mainstream products that they can manufacture a ton of (or purchase in massive quantities) and sell them all

    • 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.


      Let's see - the way of Sony. With a gigantic consumer electronics business, which used to make great stuff, but unfortunately is now reigned by a bunch of IDIOTS in the music and film
    • 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.

      That *is* what Sony tries to do, and that's part of what's killing it. Sony's great if you only own Sony products. Otherwise, they put all their effort into supporting their own pr

  • Sad. (Score:5, Insightful)

    by hungrygrue (872970) on Friday September 23, 2005 @09:21AM (#13628818) Homepage
    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.
    • Re:Sad. (Score:3, Funny)

      by Anonymous Coward
      Apple is currently the most innovative computer company around, with an operating system that makes the current market leader look like a dinosaur.

      I agree. BSD is a good OS, despite the lack of Netcraft confirmation. :)
    • Re:Sad. (Score:3, Insightful)

      by Budenny (888916)
      Well, they had two choices if they wanted to grow.

      Choice (1): move out of the niche market for bundled proprietary hardware+OS, and sell unbundled OS, and try to grow the PC product line. Risky. Bet the company stuff.

      Choice (2): stay in the niche, keep hardware+OS bundled, and diversify into different product areas for growth.

      They chose the second. This meant their PC market share will probably now never rise above 5%, the PC product line whatever its merits will not be a source of much growth.

    • by dodobh (65811)
      Their OS does not run on my hardware, and I see no sense in buying their hardware for the OS.
      I don't need a laptop, I need a portable desktop -- read battery life is not really important, but performance and features are. And Apple is nowhere close on price/performance in that market.
    • Why's it sad? It's not sad that they've got another excellent product that is selling as quickly as they can make them. It's not like the iPod market is eating away at the Mac market. They'd probably be selling pretty much the same number of macs right now if the ipod didn't exist, so all this extra money is just icing on the cake.

      They're able to sell ipods like crazy for a couple reasons, one being that they're cheaper than a computer, another being that there's a much bigger untapped market. There's alrea
    • 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.

      I share the same high opinion of Apple innovation. What is sad is that you don't see iPod/ITunes as just an MP3 player but the first digital media service where a technology company/media industry/customer all win. Apple has succeeded where Sony, M$, Real, and many others have f

    • This is pretty typical. Many companies have a a product or two that actually generates profits, while the other products pay for fixed costs and development. Now, one can't say which dollar pays for which item, but one can say which products have high proft margins and which reltively low development costs. The iPod is likely such a product, and is likely what allows Apple to remain a productive firm. OTOH, the computer side probably pays for enough fixed costs and has shown enough long term viabiliy th
  • by Kombat (93720) <kombat@kombat.org> on Friday September 23, 2005 @09:21AM (#13628820) Homepage
    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.
  • by Willeh (768540) * <rwillem@xs4all.nl> on Friday September 23, 2005 @09:33AM (#13628897)
    Apple retailers get reamed right in the ass. I've seen lists of the costs of the various products a year ago when i used to work in the field, and they ain't pretty. Think of the Apple lineup from a year ago. An Apple reseller (excluding Apple stores, they don't have any in my country) stood to make a whopping 10 off of every eMac sold, up to about 50-80 off of an iMac (the lampshade version iirc). Margins were pretty much razor thin from a retailer perspective. Then again, Apple have been known to want to eradicate 3rd party dealers and go Apple Store only, but in a country with no Apple Stores? Why limit access to your stuff at all?

    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).

    • by kakos (610660)
      Er, that's pretty common for every computer retailer. I worked at CompUSA and computer systems (made by HP, Sony, Toshiba, et al) all had a margin of between $10-50. It was miniscule. There is a reason they try to push those extended warranties on you so hard. That is where they make their money.
    • Having many retail locations to sell computers is not a good business idea - simply more overhead than can be paid for given current commodity pricing. If you need an example, look no further than Gateway. Also, did you ever wonder why Dell's "retail locations" consist primarily of kiosks in the mall? Kiosks are cheap and have high traffic - just like Dell.

      Therefore, I could care less if Apple allows resellers to market their products. Mail order [internet] distribution and Apple stores keep Apple's pr
    • Apple needs to control how their products are presented at retail - not just jam them into any and all retail stores blindly. They tried that in the 90s and it didn't work very well. Plus, it totally goes against Steve's ideas about how the Mac should be marketed.

      You'd go into Sears or Office Depot or whatever. They would "sell Macs" meaning they had a demo unit in the corner, broken, dirty, etc. and sales people who had no idea how to sell Macs and often as not would try to steer people away from Apple.

      To
  • by Udo Schmitz (738216) on Friday September 23, 2005 @09:33AM (#13628898) Journal
    It doesn't say anything about the profit Apple is making with the iPod nano. It only shows the price of the used components. This could be interesting for any competitors in the MP3-player market. You'd still need developers, marketing and all that other stuff used to get a product to market ...
  • by Anonymous Coward on Friday September 23, 2005 @09:42AM (#13628947)
    The point that things like this [ipodlinux.org] and this [fear.me.uk] demonstrate, is that Pocket is the New Platform.

    Apple are pretty savvy to this. iPod nano is a keyboard and mouse interface away from being a Classic.. its not unusual that the same sort of 'monolith screen slab' form factor of the original Mac is still resonant in their current design path.

    But now, it fits in your pocket. And it won't be long until the LED projector segment shrinks to the same form-factor, and we'll see, perhaps, even the death of laptops ..

    [.. there's nothing quite so cool as having torrent in your pocket ..]
    • The pocket is the new platform? Sounds like the media lab hype of years gone by. Anyway, until your fingers shrink I think it's premature to predict the death of the laptop. Projection needs a place to project, too. That's not a feasible solution for display. Let me offer a sober suggestion: nothing is the death of anything. Nothing is the next big thing that's going to change our lives completely, blah blah blah. There's a bunch of stuff, some of it better at certain things than others. Why is it that peop
  • by Dexter77 (442723) on Friday September 23, 2005 @09:47AM (#13628980)
    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.)

    • Developing a product C based on existing technologies A and B is known as leveraging your assets. Per project R&D assignment is only useful for internal accounting and management, so you look at it however you want to. On your SEC filings and public accounting R&D is in overhead, so you could show gross sales - cost of each product and get your gross profit margin, then lower on the sheet the overhead costs like total R&D, total advertising costs, etc. would be subtracted. As far as the internal
  • The iPod is increasing its margins, even as it increases the number of units sold, to the point where they're consuming something like 40 percent of Samsung's high capacity NAND chips. And yet somehow, they get a deal on parts that saves Apple like 40 percent of the cost of chips. "Crotty estimates that Apple is paying $54 for 2 gigabytes worth of memory. That would cost any other manufacturer $90." That seems like a large discount to give somebody who desperately needs your product. I do realize that manuf
  • See people, its easy to save money, just buy the parts plus a sodering iron and get to work. At the estimated 4 dollars to assemble, I estimate it will take a novice about an hour.

    Seriously though, ipods don't seem significantly more expensive than the competetion and companies are exiting the market (RIO), so I'd expect margins aren't as high as this estimate. Apple usually gets around 20-30% margins based on SEC filings.

     
    • The SEC filings take into consideration costs other than the raw bill of materials. For example, the contract manufacturer has some mark up to cover tooling, shipping, their overhead and profit, etc.

      I realize you are joking about assembling it yourself. However, you would not be able to buy the parts at the same price Apple could buy them. And you could not get some of the parts like the clickwheel.
  • We've seen how durable these new nanos are. That's going to help their profits tremendously as now a 5 foot drop means a scratch, not a invisible damaged circuit they have to swap out units for under warrantee. Good for them, good for me. Um, sorta. Dropped my mini and 10 days later, new mini. I think only ACME delivery to Wile E. Coyote is faster. Reducing that overhead potential just helps them more.
  • by the eric conspiracy (20178) on Friday September 23, 2005 @10:17AM (#13629212)
    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.

    • The formula does not factor in depreciation and taxes (unless that's incorporated into the manufacturing costs). To be explicit:

      Profit = Revenue - Cost - M&A - R&D - Cost of Capital - Depr - Taxes.

      While depreciation is not a cash item (the effect on cash occurred when the item was purchased, the consumption of the item occurs as entity conducts business), one needs to figure it in to understand the true cost of running the business.

      The notion of profit here is from an accounting standpoint. From a

    • Here is the formula I got with my MBA and I have used in my own business for years.

      Sales - Costs of Goods Sold (materials & Labor) = Gross Margin
      Gross Margin - Sales Costs (Marketing, Commissions, Advertising) - Corporate Overhead Allocation (Mgt, R&D, Interest Expenses, Debt Service, Inventory Costs, etc) = NET Margin

      NET Margin - Taxes - ExtraOrdinary Expenses (Plant Closings, Lawsuits, Hurricanes) = Profit

      Labor is the FULL cost of labor, wages + benefits.
      Materials is the FULL costs of Materials, c
  • Cost != Price (Score:4, Insightful)

    by 99BottlesOfBeerInMyF (813746) on Friday September 23, 2005 @10:40AM (#13629382)

    I'm always amused to see articles like this talking about profit margins and the like, as if the cost of production and marketing was a huge factor in deciding what to charge for a product. It is a factor in deciding whether or not to make a product, and what features are included in a product, but in how much to charge? You charge what people are willing to pay (actually what will make you the most profit when you balance the number of sales you will get at a given price point). I've worked at several start-up companies and seen the same scenario. We're doing OK, and getting by, hire some marketing experts to consult and they say, "well here's your problem, you're not charging enough." We quadruple the price of the product and suddenly get loads more sales. You see many people think price is equal to quality, or you get what you pay for. If you just raise the price drastically, buyers think your product is better. A good strategy seems to be seeing what your competitors are selling for, hyping one or two things you do better than them, hyping generally how much better your product is (using unspecific terms), and setting you price 10-20% higher than theirs. Everyone assumes since your product costs more it is better and 20% isn't huge, especially if they are spending their company's money instead of theirs.

    Anyone who thinks the cost of producing a product has a lot to do with what it sells for is likely clueless.

    • Just to add some support to this: I've read about several small shareware developers who work their butts off, release a product, make it cheaper than their competitors, and then watch it not sell at all. After researching it a bit, they finally run across someone telling them this exact thing: raise your prices! So, figuring they have nothing to lose, they go ahead and do that - bingo! Almost instantly they start selling more units - and at a higher profit, too! It's kind of a win-win situation, real
  • Apple doesn't make the iPod. [theregister.co.uk] Asus [asus.co.jp] and Inventec [inventec.com] do. Most production is in Suzhou and Pudong in China. Apple handles the distribution and marketing.

    Such arrangements have been around for years. But they are on the way out. The major Chinese electronics companies are establishing their own brands. Asus is a well known motherboard manufacturer. Asus and Inventec both sell PCs and laptops under their own names. They're rapidly moving from contract manufacturing to owning the entire business. The margins

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