New iPad Costs Apple More Than 50 Percent of Its Price

By Michelle Maisto  |  Posted 2012-03-19

New iPad Costs Apple More Than 50 Percent of Its Price

The new Apple iPad reveals something about what Apple is willing to do to stay on top of the tablet food chain: spend more. That desire roughly translates into $85 more per unit.

While Apple starts the pricing of its third-generation iPads at $499, exactly where it did with iPad 2, the new tablets are far more expensive for it to make. One could argue that Apple, sitting atop a gargantuan mountain of cash, is willing to take a small hit to profits. Or, and perhaps more likely, it's taking the calculated risk that a better iPad at the old iPad price€”in a market already filled with tens of millions of iPads€”will mean more iPad sales. And more cash.

The third-generation 16GB iPad with WiFi carries a bill of materials (BOM) of $306, according to IHS iSuppli, which performed a teardown of the new tablet. Add in 4G and the BOM rises to $348. Add in manufacturing costs, and it's up to $358. That doesn't include software, licensing or royalty costs.

The 32GB 4G model, with manufacturing, costs Apple $375 a tablet; the 64GB model, a total of $409.

The 16GB WiFi-only iPad 2, by contrast, carried a BOM of $237; add 3G and it was up to $263. Throw in manufacturing, and Apple's total bill climbed to $271.

Who is on the receiving end of these payments? More than any other manufacturer, it's Samsung. The South Korean company is the recipient of about 30.2 percent of the BOM from the 32GB, LTE iPad. Samsung also supplies Apple with display technology and the applications processor.

Of course, Samsung produces its own tablet line€”the Galaxy Tab€”which competes with the iPad.

Samsung may have also supplied the NAND flash€”at a cost of $33.60 to the 32GB Long-Term Evolution (LTE) iPad or $67.20 to the highest-end model€”though in the particular iPad that IHS took apart, the NAND was from Toshiba.

In addition to Samsung, "Toshiba, Hynix Semiconductor and others are all NAND suppliers to Apple, and each will claim a portion of those revenues," IHS reports. In instances where Samsung is indeed the supplier, however, its share rises to 39.4 percent, or $33.60 of the total $143.60 for the 32GB LTE iPad. 

Also possible, says IHS, is that Samsung provides the new iPad's $32 battery cells, which would drive its portion of the BOM to nearly 50 percent.

That Samsung display is not-so-arguably the Apple iPad's best feature. (Walt Mossberg, writing for The Wall Street Journal, called it "the most spectacular display I have ever seen in a mobile device.")

But it's also the most expensive display. At $87, Apple pays $30 more for it than it did for the displays on its second-generation tablets.

The Retina Display Is the Centerpiece of the New iPad


€œThe Retina Display represents the centerpiece of the new iPad and is the most obvious enhancement in features, compared to previous-generation models,€ Andrew Rassweiler, senior principal analyst with IHS' teardown services, agreed in a statement. €œThe first two generations of the iPad employed the same type of display€”a screen with resolution of 1,024 by 768 pixels. For the third-generation new iPad, Apple has taken a significant step up in display capabilities and expense, at four times the resolution and 53 percent more cost.€

The second-most-expensive items on the BOM are filed under "mechanical/electro-mechanical" bits, which add $50.50 to the bill of all the new iPads.

Next up is the wireless section, which, given the change from 3G to 4G, explains the increase from $25.60 to $41.50.

"The big winner in this section is Qualcomm Inc., whose MDM9600 baseband processor provides the core LTE functionality," writes IHS, adding that it believes these parts are the same across AT&T and Verizon Wireless models "although that hasn't been confirmed yet."

Also pricey: The touch-screen€”the same as in the iPad 2€”is again priced at $40.

The processor, Apple's new A5X, comes at price of $23, up from $14.20. While Samsung acts as a foundry partner on the processor, IHS clarifies, the intellectual property is Apple's.

This means that Samsung's margin on the component is lower than it would otherwise be.

The cameras now cost Apple $12.35, instead of $4.10, since it boosted the megapixels on the new iPad's rear-facing camera from barely 1 to 5 megapixels. And finally, in one area, Apple actually managed to save a few coins. The price of the new iPad's user interface, sensors and combo module for WLAN signals is now an even $15, down from $15.35 on the iPad 2.

IHS adds that Apple "far and away" makes more money selling NAND to consumers than NAND manufacturers make selling it to Apple. While the BOMs between the 16GB and 32GB 4G iPads are less than $17, Apple jumps the retail price between the two by $100.

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