iSuppli: 3rd generation iPod Nano has cheapest hardware yet

iSuppli Corporation has conducted its usual dissection of the latest product from Apple, concluding this time that the 3rd generation nano is more of a revolution than an evolution of the previous model. The majority of the components in the new compact music player are simply nonexistent in the old nano, and new suppliers have been brought to the table. "The changes in components have resulted in significant cost reductions in the nano design, allowing Apple to offer a product that is less expensive to build and that has enhanced features compared to its predecessor," said Andrew Rassweiler, senior analyst and teardown services manager for iSuppli.

iSuppli's Teardown Analysis team determined that the Bill of Materials (BOM) comes to $58.85 for the 4GB version (retail price of $149) and $82.85 for the 8GB version (retail price of $199). In other words, Apple is selling the devices for more than double their hardware worth, which is exceptional even by Apple's standards. The BOM of the new 4GB nano is 18.5% lower than the $72.24 direct materials cost of the previous version of the nano released in late 2006. The new product has the lowest BOM of any member of the nano line analyzed by iSuppli. However, these values are estimates and do not include costs for manufacturing, software, intellectual property, accessories, packaging or research and development costs.

News source: iSuppli

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The cost of R&D may be 'miniscule' in comparison to what a company is worth, but when the return of investment per unit expressed as a profit? Even if the cost was only us$5,000,000 thats still -alot- of product to sell just to recoup R&D before you even consider hardware costs, assembly costs, support, software and sales costs.

if they sell 5 000 000 ipods, which is extremely conservative, guess what thats $1 each now they have actually sold over 100 million from what i have read, even if it cost them 100 million for R&D thats only $1 /unit in R&D

do the math, you are looking at a few cents / unit in R&D

so wheres that extra $100 odd dollars coming from ????

of course the hardware is the cheapest.

apple are in the business of making money... if you can make a cheaper product, then it makes perfect business sense.

of course, the product should still work

I can understand some sort of price difference between production costs and actual retail value but more than double the price is just crazy. I wonder if people can buy directly from the OEM.

Tikitiki said,
I can understand some sort of price difference between production costs and actual retail value but more than double the price is just crazy. I wonder if people can buy directly from the OEM.

Apple IS the OEM.

Kushan said,

Apple IS the OEM.

Um, exactly. What part of Original Equipment Manufacturer do you not understand, Tikitiki? :P

excalpius said,
Exactly. Why is this front page "news" anyway? Honestly?
Because its Windows users that put the iPod in the mainstream.

JrDZ13 said,
Halo 3 has a 90% profit rate, even after R&D. Return on investment is more complicated than "think rip-off".

software is also not really comparable to hardware, as you relaly are just paying for packagin, once R&D is got back in software you are looking at almost pure profit

I know the cost of manufacturing etc was included, but dont forget to remember 'retail' costs on top of those too. Wages, rent etc all need to come from the difference between store's warehouse costings and markup costings.

It'd be nice to see what value the ipods have inhouse before store markups are added though.

seamer said,
I know the cost of manufacturing etc was included, but dont forget to remember 'retail' costs on top of those too. Wages, rent etc all need to come from the difference between store's warehouse costings and markup costings.

It'd be nice to see what value the ipods have inhouse before store markups are added though.

That still doesn't explain why it's nearly 20% cheaper to make, yet the same price as the previous model.

Kushan said,

That still doesn't explain why it's nearly 20% cheaper to make, yet the same price as the previous model.

Because they did that breakdown of the 2nd gen iPod nano a year ago? If they were to see how much a 2g iPod nano were to cost Apple today, I don't expect any drastic changes in cost. Besides, none of the BOM ever include R&D costs, marketing, technical support, or "frills" stuff that makes a good product a GOOD product.

dagamer34 said,

Because they did that breakdown of the 2nd gen iPod nano a year ago? If they were to see how much a 2g iPod nano were to cost Apple today, I don't expect any drastic changes in cost. Besides, none of the BOM ever include R&D costs, marketing, technical support, or "frills" stuff that makes a good product a GOOD product.

Yes and investments made by outside sources have absolutely zero bearing on money coming in to Apple.

dagamer34 said,

Because they did that breakdown of the 2nd gen iPod nano a year ago? If they were to see how much a 2g iPod nano were to cost Apple today, I don't expect any drastic changes in cost. Besides, none of the BOM ever include R&D costs, marketing, technical support, or "frills" stuff that makes a good product a GOOD product.

So you're saying that Apple spent 20% more on R&D, marketing and technical support for this generation of Nano than the previous generation? That they just happened to even up thier costs with the previous generation's profit margin?
OR is it possible that Apple is making more money because they know people are dumb enough to pay the price they ask?

dagamer34 said,
Because they did that breakdown of the 2nd gen iPod nano a year ago? If they were to see how much a 2g iPod nano were to cost Apple today, I don't expect any drastic changes in cost. Besides, none of the BOM ever include R&D costs, marketing, technical support, or "frills" stuff that makes a good product a GOOD product.

I would have thought all or the majority of the R&D costs would have been recovered in the preivous models. Yes the new model is smaller and the casing are all different but essientials an IPOD nano is an IPOD nano.

Torment said,

I would have thought all or the majority of the R&D costs would have been recovered in the preivous models. Yes the new model is smaller and the casing are all different but essientials an IPOD nano is an IPOD nano.

absolutley, the R&D costs on the ipod are going to be miniscule, and already made back by all the other ipods

I think the markup is well justified. I know people that won't sell goods unless they are making 1000% profit.

the console industry has completely different priorities, they want you to buy their console even if it costs them money as they more than make it back from the license money for each game sold

bobbba said,
the console industry has completely different priorities, they want you to buy their console even if it costs them money as they more than make it back from the license money for each game sold

ok what about the rest of the computer hardware market.

the consumer electronics market

the tech industry as a whole, except maybe the software market, but that is indeed a different market. APple is the only ones doing this that i know of in the hardware market

whocares78 said,

ok what about the rest of the computer hardware market.

the consumer electronics market

the tech industry as a whole, except maybe the software market, but that is indeed a different market. APple is the only ones doing this that i know of in the hardware market

iPod's are in the consumer electronics market, not the computer hardware market. What do you think the profit margin on bose or bang and oulfsen consumer electronics brands are like?

To be honest with you, there are very few businesses where net profit margin is more than 30%.

Apple maybe selling iPods for double the price it costs to build them. But think about all other costs: R&D, fixed costs (somebody has to pay for Apple's offices across the world), salary (Apple has to get money somewhere to pay its employees) - after you add all that up and substract corporate taxes, Apple maybe making 10-30% on each iPod.

umm yeah did you read my post. that middle line right there "the consumer electronics market"

i bet they are not doble the price of the hardware

The new nano rocks! Saw one in town the other day, much smaller than you realise until you see it!

yep its definatly shorter, but it is wider... personally I like the last generation of nano's.. something about the rounded look reminds me of those cheap calculators you can buy at staples which are made of rubber... nice to have a bigger screen and video though... not sure if ill upgrade or not right now I have the generation of the nano that has the glossy black plastic front and silver back... and it never leaves my car (pluged into a pinoeer ipod interface as a storage device for music)... I just wish the price of them would drop somewhat

I love the new Nano too. I admit that I find the older types (like my G1 4GB) more "professional" looking, as the new ones look far more like kids toys, but there is no doubing the power and features of the new one vs the older ones..

Very nice and despite the markup, I think pretty well priced!

Chicane-UK said,
I love the new Nano too. I admit that I find the older types (like my G1 4GB) more "professional" looking, as the new ones look far more like kids toys, but there is no doubing the power and features of the new one vs the older ones..

Very nice and despite the markup, I think pretty well priced!

you have to be kidding me, you can justify them charging double what they make to manufacture it??? how??, if sony did this the ps3 would be even more ridiculously overpriced.

JiveMasterT said,
Manufacturing costs do not take into consideration time to design, develop, and support the product. Factor that all in as well.

they made more than their money back there on the first how ever many generations of ipods, i am guessing most of the R&D costs you mention have definately been made back already

whocares78 said,

they made more than their money back there on the first how ever many generations of ipods, i am guessing most of the R&D costs you mention have definately been made back already

So R&D costs vanished after the first iPod was released. Riiiiigggggghhhhhhtttt........ seriously, get a clue. Truth be told, any manufacturer is going to set their sell price on what the market can bare and not solely on the bill of materials for the product.

Although it is very interesting to know about what the cost of one of these costs Apple, it shouldn't lead to the conclusion that Apple is overpricing their products. Everyone already knows that Apple overprices their products, along with most other manufactures.

If they've made all the money they can stand from the first few generations of iPods, why doesn't everyone at Apple just go home and retire early.

i did not say that, read the post, i said MOST of the R&D costs would be made back by now. there would definalty be R&D costs in updating the iPods however nowhere near as much that went in to the original R&D, i have a clue and i know what i am tlking about. the same reason dvd burners are $50 now instead of $4000 the originalR&D to design the whole thing has been made back, they have litle R&D in updating packaging and tweaking, so the devices are extremely cheap.