Katie Marsal![](\"https://photos2.insidercdn.com/images/ipodvideoteardowns.jpg\")
Analyst for an investment bank recently performed a teardown on Apple's new video iPod player, revealing its various component manufacturers and estimating the company's profit margins.
Landing two of the biggest design wins are PortalPlayer and Broadcom, Jefferies said. The video iPod features an $8 audio decoder chip from PortalPlayer, a company which continues to secure Apple's iPod business. Meanwhile, Apple has reportedly tapped Broadcom for the $10 video decoder chip responsible for the iPods video playback capabilities.
Interestingly enough, a report from April of this year suggested Apple had contracted the use of Alphamosaic's next generation VC02 chip for a device with video, image, and music features. The British-run Alphamosaic employees about 60 and was acquired by Broadcom for about $125M last September.
Also inside the iPod, Jefferies found a $65 Toshiba 30GB 1.8-inch hard drive; $1.75 256Mbit Samsung SDRAM chip; $3.75 Wolfson Microelectronics audio codec; $1.60 Linear USB power manager/Li-Ion battery charger; $0.75 National step down switching regulator; $1.00 Philips DC/DC converter; $1.30 Silicon Storage Technology 8Mbit parallel flash; $2.50 Philips power management unit; and a $0.85 Cypress PSoC mixed signal controller touch pad.
Combined with a $2.50 touch pad, $4.50 Li-ion battery, $15.00 LCD screen, and $25.00 of other materials, the firm estimates Apple's bill of materials for the video iPod to total $143.50. Before manufacturing, advertising, freight and other charges, this represents a 52% gross margin based on the 30GB iPod's $299 suggested retail price.
"We continue to recommend investors buy shares of Broadcom ahead of its earnings report on Oct. 20 as we expect it to beat and guide up, with this iPod win representing incremental revenue to Q3 and Q4," the firm said.
Prior to its release, Jefferies made accurate predictions on the video iPod and was the first firm to confirm that the players were in production in the Far East.
(Photo Credit: Jefferies & Co., Inc.)
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15 Comments
Wow, the cost of just the bare parts is half the device's list price, and they didn't even try to estimate the assembly cost!
But still, the costs are in line with the estimates we've seen with previous models.
Well, you also have to factor in research and development, sales, electricity and other overhead. They need that extra 53% to pay the bills and probably only get 5% profit.
Well, you also have to factor in research and development, sales, electricity and other overhead. They need that extra 53% to pay the bills and probably only get 5% profit.
Expect margins of 30% or more. One of the great things about a really high volume item like the iPod is R&D eats into your margins a lot less. Manufacturing and logistics would add up though. That's CE though and I'm not going to begrudge Apple for doing the same as everyone else.
OMG! Apple is making money on these things? OH THE HORROR!
Whats next, you gunna tell me that Apple is a company that exists to make shareholders a profit?
AND: how does the author know what Apple pays for the parts; is that kind of volume discount info redily availible?
I think Apple actually gets the parts even cheaper than the prices listed here; I believe the research here is just a guestimate, and the actual numbers are far lower (Apple has a way of bargaining, especially since it is now the number one digital music player provider).
While 50% profit seems excessive, the company averages this amount or more and has to pay for all the other things that go in to marketing and selling the product.