The Profit Margin on the iPod nano

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.'"

The part of the article that applies

[op12]

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.

Re:The Question Answered

[RobinH]

Remember that this is per-unit profit, but doesn't include R&D costs.

Re:Too bad that's so simplified

[Zangief]

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.

Re:Tooling? Investment?

[untaken_name]

Let's not forget the cost of making those 'hip' 'trendy' 'moronic' commercials and the cost of the airtime to show them. I seem to see an iPod ad about once every commercial break mo matter what channel I happen to be watching, so I'm sure it's a significant cost.

Revenue = Profit? I wish

[the eric conspiracy]

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.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:Too bad that's so simplified

[vertinox]

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, the Patent experts and full time lawyers they hire on cost an arm and a leg and have to be factored in.

Sources:

http://www.copyright.gov/register/sound.html [copyright.gov]

http://www.uspto.gov/web/offices/com/iip/patents.h tm#PatentCost [uspto.gov]

Re:The part of the article that applies

[saider]

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.

Re:$25 a gigabyte?

[WillAffleckUW]

The article says Apple is getting a gigabyte of flash for $25 (wholesale). The best RAM prices I've seen this year has been $118 (retail). As recently as last year flash was more expensive.

Not this year. You can buy a post-manufacturer 1GB Flash card with MP3 player, FM radio, and voice recorder for under $50 right now if you know where to look.

Nano has a plastic screen cover

[snowwrestler]

The Nano LCD's glass surface is hidden under a clear plastic cover (in fact it covers the entire top of the Nano), whereas on the Mini the glass screen of the LCD is exposed. Glass is more difficult to scratch than plastic, therefore it is harder to scratch the Mini's screen than the Nano.

If you care about scratches, get a Mini on sale. The glass screen and metal body are very scratch resistant.