iPod video tear-down suggests high Apple margins (images)

Craig Berger, an analyst at Wedbush Morgan Securities who covers PortalPlayer, had predicted that the iPod chip maker would retain its slot in the device and ripped one open just to be sure.

"We do see both the PortalPlayer MP3 processor and the Broadcom video processor chip inside this device, consistent with our prior expectations that this device would remain a discreet two-chip solution for the time being," he told clients in a research note on Thursday.

Berger said Apple made very few hardware changes over its fifth-generation iPod with video playback, but did update the player's power management chips "The lack of hardware changes implies that this device is a short-term, stop-gap device intended to buy Apple more time until it is ready to launch its true iPod Video later this year or early next year," he said.

Given the lack of hardware changes, the analyst believes Apple is still working on launching its 'true' video iPod late this year or early next year. "In the forthcoming 'true' video iPod, PortalPlayer and Broadcom could maintain their supplier status," he said, "or recent speculation that nVidia (or Samsung) will be the processor supplier could prove true."

Of interest to Apple investors, Berger's tear-down analysis implies that the company's gross margins could be between 45 and 50 percent on the refreshed iPod video devices given continuing hard disk drive price declines.

"Apple should see strong gross margins on these devices in the mid-40 percent range, per our [bill-of-material] cost estimates," he wrote in his note. "Apple is not scaling the capacity of the iPods that fast, and with the hard drives used in the iPods getting cheaper as time goes on, Apple can lower the price point on its 30GB iPod while still maintaining gross margins."

Berger estimates that Toshiba hard disk drives account for approximately 46 percent and 61 percent of Apple's materials cost for the 30GB ($60) and 80GB ($110) model, respectively. Other costly components standard amongst both models are said to include a $9.00 2.5-inch color LCD screen, a $6.00 Li-ion battery, $5.80 PortalPlayer SoC, $8.50 Broadcom video decoder, $3.00 Wolfson audio codec, $2.50 Click-Wheel and $9.00 aluminum case and connector kit.

The analyst estimates the total bill-of-materials cost for the $249 30GB model to be just $130.90, which would represent a 47.4 percent margin before freight, marketing and other costs. Similarly, he estimates materials for the $349 80GB model cost just $180.90, yielding margins of approximately 48.2 percent.

In his tear-down, Berger also lists Infineon as a supplier of 256Mbit SDRAM ($1.20), Linear Technology proving a USB power manager and Li-ion charger ($1.50), National Semiconductor lending at high voltage step down switching regulator ($0.70) and Cypress contributing a Click-Wheel PSoC mixed signal controller ($0.90).

Philips and Silicon Storage Technology also continue to play small roles in the video iPod, according to the tear-down.