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.'"

Apple paving the way to thin consumer devices

[xtal]

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.

There might be more to it than the cost of parts

[jockm]

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

[mysqlrocks]

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.

Necessary to be an innovator

[Karma_fucker_sucker]

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.

Re:Too bad that's so simplified

[TeamSPAM]

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.

Re:Necessary to be an innovator

[Ingolfke]

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

-cough- Dell -cough-

Re:Apple paving the way to thin consumer devices

[AGMW]

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?

Re:The part of the article that applies

[Alex P Keaton in da]

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...

The Pocket is the New Platform.

[Anonymous Coward]

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 ..]

Re:Too bad that's so simplified

[tgd]

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.

Re:In the meanwhile...

[kakos]

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.

Maybe I am in the minority

[Shivetya]

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?

Re:Engineering costs?

[sammy baby]

True, but if your fixed costs are high enough, your gross profit margin won't be able to cover it, so they still factor in.

(I mean, let's not kid around, there's no way in hell Apple is gonna fail to make its fixed costs back on this one. They'll probably do it in the first week.)

Re:Tooling? Investment?

[ChrisF79]

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.

Marketing is a G&A expense and is below the gross margin line as well.

Re:Forgot a Couple

[NewNole2001]

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 because of them sending me that for free, I have been a loyal Gillette customer for over four years now.

Re:Engineering costs?

[ChrisA90278]

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

Re:How does this work?

[NatasRevol]

It's not need they sell, it's wanting upgrades.

Re:The part of the article that applies

[ball-lightning]

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 attachments must be insane. $40USD for earbuds? I've seen the margins on similiar items, and they're usually around 80%. Also, don't forget that when you RMA an item, Apple will fix whatever is wrong with it, and then sell [apple.com] it again, re-couping some of those RMA costs.

Just think, until recently the ITMS was actually losing money. This means that the profits from Apple's iPods + Dog are enough to make up for everything AND still make a profit. Now that ITMS is breaking even, Apple has got to be making a killing.

Re:The part of the article that applies

[cal0140]

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.