Apple's new iPod nano sports fattest profit margins yet

Apple's new iPod Nano introduced last week is virtually a completely new design of the player, using a fresh array of components and sporting the fattest profit margins of any other iPod of recent past, according to a new tear-down analysis.

Market intelligence firm iSuppli recently dissected the new Nano and determined the product carries a Bill of Materials (BOM) cost of $58.85 for the 4Gbyte version and $82.85 for the 8Gbyte version, compared to their retail price of $149 and $199, respectively.

As has been the case with all of iSuppli's recent tear-downs, the estimated BOMs are strictly limited to costs for components and other materials used to construct the product, but do not include costs for manufacturing, software, intellectual property, accessories and packaging. The firm's BOM figures also do not include research and development costs, since such data cannot be derived from a tear-down and component analysis.

In achieving the Nano's more cost-effective design, Apple has reportedly turned to a fresh array of component suppliers that include Micron Technology Inc., Dialog Semiconductor GmbH and Intersil Corp. Synaptics Inc., once a fixture in click-wheel-based iPods, has also returns to the platform after an absence.

"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.

Fat margins are nothing new for Apple, whose products traditionally have been sold at retail pricing that is about twice the level of their hardware BOM costs, based on earlier tear-downs of the iPhone, the iPod Shuffle and previous members of the iPod Nano line (2005 Nano, 2006 Nano). However, Rassweiler notes that with the new Nanos, "Apple has exceeded even its usual lofty standards."

The arrival of new Nano semiconductor suppliers, Micron, Dialog and Intersil — and the return of Synaptics — has been accompanied by the departure of previous part providers, NXP Semiconductors and Cypress Semiconductor Corp. Such wholesale supplier swaps are also not unusual for Apple, which frequently switches its component partners.

"With Apple, it seems, no supplier is safe, and no slot is a given," Rassweiler added.

Of all the Nano's new component suppliers, Micron stands out as the most notable addition because it's the first time that iSuppli's Teardown Analysis Service has identified a Micron part in an iPod. In the Nano torn down by the firm, Micron was the maker of the high-density NAND flash memory that serves as media storage, worth $24 in the 4Gbyte version of the product and $48 in the 8Gbyte version.

"This gave Micron the largest single portion of value in the Nano of any supplier at 40.8 percent for the 4Gbyte version and 57.9 percent for the 8Gbyte," the firm said.

Third-gen iPod nano tear-down photo compliments of iFixIt

Apple's primary suppliers of NAND flash historically have been Korea's Samsung Electronics Co. Ltd. (which has been the dominant seller), Japan's Toshiba Corp. and Korea's Hynix Semiconductor Inc.

Micron is last in share position as a supplier to Apple for NAND flash, and only began shipping small quantities during the last year. While the new Nano slot is a major win for the U.S. semiconductor supplier, iSuppli believes Samsung remains the world's largest maker of NAND-type flash and is likely to continue to be used as a supplier by Apple.

iSuppli Table: Direct Materials Cost Estimate of the new iPod Nanos

Another one of the biggest and most important slots on the new Nano is the combined core video processor/microprocessor chip in the system, according to the firm. Costing $8.60, the Samsung-supplied core IC processor accounts for 14.6 percent of the 4Gbyte version's BOM, and 10.4 percent of the 8Gbyte's BOM.

This is the second time around for Samsung's core processing IC in the Nano line; in the version of the Nano released in late 2006, Samsung supplied the core processing IC as well. Samsung also contributes 32Mbytes of Mobile SDRAM, worth $2.72, or 4.6 percent of the 4Gbyte BOM and 3.3 percent of the 8Gbyte BOM.

iSuppli tentatively forecasts that total iPod Nano shipments will reach about 23 million units in 2007 and 27.9 million during 2008.