
New Apple Watch Has Lowest Ratio of Hardware Costs to Retail Price - jerryhuang100
http://www.businesswire.com/news/home/20150430006412/en/Apple-Watch-Lowest-Ratio-Hardware-Costs-Retail
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skywhopper
Note that this data is all just made up. The components listed are probably
close to right (though I don't see anything about the haptic device--could be
I overlooked it) but the cost for each is just a random guess. I'm guessing
they also well undershoot the assembly cost, given the extreme care Apple puts
into its manufacturing process.

And even if all the per-unit costs are correct, the fact that they leave out
R&D and logistics costs is very misleading, especially given that this is not
just a new revision of a well-understood product like a new Mac or iPhone.
This is a new product altogether, and that overhead is significantly higher.
So in the end the number is misleading and ultimately pointless, except to
Apple's cost accountants.

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bravo22
The article is only concerned with unit costs, not overall cost with various
amortizations built in.

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r00fus
Is that a meaningful analysis?

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poolpool
No.

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jafingi
R&D also costs a few pennies...

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forgotpasswd3x
Nobody is suggesting that.

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youdell
Errrr... the person you wrote a reply to suggested it...

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forgotpasswd3x
I misread his post and thought he was being sarcastic.

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grecy
And yet, on the earnings call Tim Cook specifically said the Watch doesn't
have a profit margin as high as other products.. yet.

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shawn-furyan
That's not inconsistent with this analysis. As the article states, there are
several factors, many of which would tend to be higher for a first generation
product than a latter generation product (i.e. setup costs), that the bill of
parts doesn't take into account.

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astrodust
There could also be a very high internal defect rate which would significantly
impact the net cost per unit.

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hinkley
They could also be expecting a high external defect rate, and be factoring,
say, 10% into the sale price to defray warranty costs.

It's also the first of a new product line, so it likely also has to cover some
of the costs of creating and entirely new division inside of Apple, from line
support up to executives. NOT just the R & D costs.

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rebootthesystem
<sarcasm>Greedy bastards!</sarcasm>

I always find it interesting to note that nobody ever acuses Apple of being
greedy. The typical punching bag on the "greedy bastards" bandwagon are the
oil companies. Interestingly enough they operate at gross profit in the order
of 7% while Apple is running somewhere around 40%.

Just google "apple profit margin" for that data. Here's a Forbes article on
oil companies, including the revelation that the government makes far more
money per gallon than the oil companies themselves. Data is a bitch.

[http://www.forbes.com/2011/05/10/oil-company-
earnings.html](http://www.forbes.com/2011/05/10/oil-company-earnings.html)

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spinchange
> _At the gas tank integrated oil companies make about 7 cents per gallon_

This has to be the figure for what the owner of the gas station makes, which
in some instances is the oil company itself, but in many instances is a
franchisee. Some states actually have price controls on gas to protect small
"mom and pop" stations from "integrated" competitors(!) So, Exxon, et al. are
making a hell of a lot more than $.07 per gallon of unleaded gas, not to
mention the fact that gasoline is just one product that comes out of a barrel
of oil.

I think people do see Apple as greedy, but even more people perceive thier
products as non-commodity, luxury goods and think Apple is justified. A lot of
people also identify with the Apple brand on a personal level. I don't think
anyone thinks of themselves as an Exxon or BP person. Millions of people think
of themselves as "Apple people."

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rebootthesystem
No, it's about 8%

[http://cdn.exxonmobil.com/~/media/global/Reports/Other%20Rep...](http://cdn.exxonmobil.com/~/media/global/Reports/Other%20Reports/2015/2014%20Financials)

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swamp40
$2.50 to assemble and test?

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genericuser
That works out to it taking about an hour to assemble and test, sounds
reasonable to me.

At least based off the wage from 2012, allowing for an over 10% increase.

"At that salary, the wage ranges between $1.50 and $2.20 an hour, based on the
exchange rate of 6.3 renminbi to the dollar."
[http://economix.blogs.nytimes.com/2012/02/24/the-ieconomy-
ho...](http://economix.blogs.nytimes.com/2012/02/24/the-ieconomy-how-much-do-
foxconn-workers-make/?_r=0)

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gohrt
That's a sad reminder of the level of labor exploitation that goes into luxury
products and profit margins.

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bdcravens
Is it exploitation though? If that's a prevailing wage in the area, it's not
exploitation. It's just lower than they'd pay elsewhere. (if they are making
them work for less or in unreasonable conditions, then yes, it's exploitation,
but not because it's cheaper than US labor)

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velodrome
Apple usually has a 1:3 cost to retail price ratio (based on mobile devices).
Maybe they need the headroom for additional sensors (to maintain the current
price).

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johansch
This is typical of fashion items.

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Vadoff
Highest* ratio

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TallGuyShort
No I think they mean lowest. They're saying the actual cost of the hardware
(numerator) is low relative to the purchase price (denominator).

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smegel
Hardly surprising for what is essentially a piece of jewelry. The cost
inflation for the gold piece especially has nothing to do with the cost of the
most expensive material (the gold itself).

