

Apple makes $208 on each $499 iPad - cwan
http://www.computerworld.com/s/article/9150045/Apple_makes_208_on_each_499_iPad

======
ajross
They priced the A4 chip at $15, which sounds awfully aggressive to me. That's
what you'd expect for a mass market chip for a item you buy in quantities of
hundreds of thousands _after_ all the kinks are worked out in the fab. This is
a custom job, which hasn't sold anything yet. It will only get to that _if_
the iPad sells huge numbers.

And obviously none of that includes the engineering costs to produce the chip
in the first place.

~~~
derefr
Well, they're selling it to themselves; other chips have mark-up. The
engineering costs were factored into the purchase price of PA Semi, I imagine.

~~~
philwelch
You have to keep paying the engineers even _after_ you buy out the company,
you know. Having to buy PA Semi just made it more expensive for Apple to
develop the chip. This is definitely a long term payoff horizon.

~~~
dazzawazza
I thought EVERYTHING was done by Jobs. Surely he's not paid that much! There
are no RnD costs, Steve just dreams it all up.

~~~
philwelch
Jobs' salary is $1 a year, and yet he is often cited as the most valuable CEO
in the world. Though to be fair, every so often the board awards him with
stock options, airplanes, and all kinds of other bonuses.

------
Groxx
I hate things like this. They're extremely speculative, and take absolutely no
account for research or advertising.

Without the _highly successful_ and _essential_ research & marketing that
Apple has been doing, they wouldn't be Apple. How much money goes into that?

That said, where can I get that screen + multitouch capabilities for $100,
16gb good flash for $25, and that processor for _$15_? Show me to the nearest
store, and I'll happily drop _twice_ that if they'll sell.

~~~
chrischen
And Sony loses hundreds in each playstation 3 sold, but they make it up on
games. Apple makes hundreds of dollars but still forces you (to some degree)
to use their proprietary store. It's not like Sony didn't spend r&d and all
that fancy junk on the ps3 too.

~~~
tjogin
The AppStore is a means to an end, it's not a gold mine. If I remember
correctly from the last report, it about breaks even.

------
yan
a) this is all extremely speculative and not really based in reality

b) this assumes that R&D, software/hardware development and pretty much
everything else that goes into making a product is free.

~~~
mattmaroon
Not to mention retailer and distributor markups. Most iPods are not sold
direct by Apple.

~~~
pan69
Yeah, I guess the truck driver who delivers these products to the retailer
works for free as well...

------
gr366
Even if this seemingly premature and speculative analysis is correct, it
shouldn't come as a surprise that Apple makes a good profit margin on their
hardware. In the last decade they've demonstrated the pattern of using media
distribution as the loss leader to sell their profitable hardware.

What's impressive this time is that they may make such a healthy margin on a
hardware product that came in so far under everyone's expected $800-1000 price
point.

~~~
raganwald
IIRC, Apple currently dominates the profit margin on computers even though it
doesn't dominate volume, thanks to its ability to sell value.

The very nice thing about this (if true) is that it will allow Apple to
continue to mercilessly drive prices down while continuing to invest in R&D.
That's exactly what they did with iPods and laptops, and it must be insanely
difficult to compete with them.

Can you imagine rolling out a product priced at $450 knowing Apple could put
the iPad on sale for $400 and still make money? What are you going to do,
break even at $400 only to watch them sell it for $350 and outsell you and
still make money?

~~~
gte910h
I honestly am amused at those guys who screwed over TechCrunch at this point.
They're sitting at a device they need to sell at a 500 buck price point, in
direct competition....

------
fuzzythinker
They say Apple makes the most from the 3g models. But gottabemobile.com had a
good article on that it maybe a reverse subsidy which Apple pays ATT a certain
amount per 3g unit sold get the $15/30 no contract pricing. So if that's true,
they aren't really making much extra on 3g vs. no 3g models.

~~~
Raphael
Yeah, must be what the $130 is for.

------
elblanco
That's actually surprising to me. With a large capacitive multi-touch screen
like that, I would have figured the cost would have been higher.

~~~
jstevens85
Perhaps the analysis is incorrect? Come on, this isn't reddit. We can't
believe everything we read on the Internet.

~~~
xiaoma
What does this have to do with reddit? It's been a long time since I've been
on reddit, but I don't remember the commenters there believing everything in
every linked article. On the contrary, I saw deeply suspicious attitudes and
conspiracy theories on what I would have thought were tame topics.

~~~
jstevens85
The crowd at reddit has gone rapidly downmarket in the last few months. Take
this comment thread from a couple of days ago:

[http://www.reddit.com/r/WTF/comments/ava3b/australia_bans_sm...](http://www.reddit.com/r/WTF/comments/ava3b/australia_bans_small_boobs_and_female_ejaculation/)

Obviously the idea that the Australian censorship board is banning all porn
that features breasts below a certain size is incorrect, yet not one commment
in the > 1000 thread has questioned the accuracy of the article.

------
ZeroGravitas
Apple has generally had a profit margin of 35% across it's lines, I think they
said in their last financial call they were now averaging near 40% gross
profit margin:

40% of $499 = $199.60

~~~
tjogin
I think this product is an exception to that rule. The reason is that there is
no tablet market. It doesn't exist.

Apple is doing what they hardly ever do here; they're selling the iPad at low
margins (which will get higher with time) in order to take this market, giving
competitors little chance to undersell them with their inevitable knockoffs.

They usually don't do this. Usually they care more about margins and profit
than about market share. But they're in a golden position right now; they have
more cash than they know what to do with, they're making loads of money while
their competitors are struggling.

------
jackowayed
That completely ignores R&D costs, basically. They designed the chip
themselves, so there's R&D costs there. They also wrote the software, and may
have had the touch screen custom-designed or something (correct me if I'm
wrong on that, I just know it's supposed to be unusually pretty and precise.)

So yeah, if they sell an infinite number, there average profit margin should
be $208. Realistically, a reasonable chunk of that (I'd guess well under half,
but probably not negligible either) goes to designing the product and the
components.

------
mattmiller
If true this makes sense. When the IPhone came out it was over priced, I
assume to help pay for their R&D.

