IHS: Apple’s iPad Air Costs $42 Less to Make than iPad 3

| News

IHS announced the results of its teardown analysis on Apple's new iPad Air, and the research firm believes the new devices comes with even better margins than previous iPad models. The company said the bill of materials for the base iPad Air model comes to US$274, 13.3 percent less than the $316 BOM on the iPad 3 when it shipped in 2012.

IHS's teardown focused on the iPad 3, though the iPad 4 was released later in 2012. Both models were similar, but the figures in this report focus on the iPad 3.

IHS Exploded View of iPad Air

IHS Exploded View of iPad Air

“While the iPad Air slims down in size, the profit margins are getting fatter,” Andrew Rassweiler, senior director, cost benchmarking services for IHS, said in a statement. “Although the Air’s new, ultrathin display and touch screen are more expensive than for the third-generation iPad, Apple has held the line on cost by taking advantage of price erosion in other areas. Furthermore, the iPad Air leverages the same components and suppliers that are used in the iPhone 5s and 5c as much as possible.”

The company also drove home the point that Apple's artificial storage-based price points are very profitable. The BOM on the 32GB iPad Air is just $8.40 more than the 16GB model, but it is priced $100 higher. This has long been understood about Apple's retail pricing on iPhone and iPad, but it's always fun to be reminded now and then.

IHS also noted that the iPad Air's display is just 1.8mm thick, substantially thinner than the 2.23mm of the iPad 4. Apple also eked out some thinness in the touchscreen by using, "an expensive cyclo olephin polymer (COP) film sensor vs. the thicker and cheaper glass sensor used in the previous models."

Both of these choices actually added to the cost of the iPad Air, however. IHS estimated the iPad Air's display cost $90, compared to $87 for the pervious model. The touchscreen model is also more expensive, at $43, compared to $37.50 for the previous model.

Which means that Apple saved money in other areas. For instance, the power-saving features in iPad Air that allowed Apple to offer increased battery life as iPad 4 with a significantly smaller battery means spending less on that battery. IHS said that Apple also leveraged more parts with the iPhone 5s, meaning more price breaks on higher volumes.

IHS's teardowns look only at the cost of materials and labor (the company said manufacturing costs add another $6 to the cost of each device), and most of those costs are estimated. R&D (both engineering and design), marketing, and shipping costs aren't included.

Comments

Andhaka

I don’t really have a problem with high margins when the product is top quality, and the iPad Air is clearly in that category, but the prices Apple imposes on storage upgrade are out of the “huge profit margin” territory and exploring the “practically stealing” thundra. smile

And I think the bse model should be a 32 GB with no price change.

Cheers

gnasher729

What about this: The 32 GB is priced as it should be, but Apple allows you to safe $100 if you buy the entry level model.

Andhaka

Gnasher: Not sure I understand… You mean they should sell the 32 GB for 499 and keep the 16GB model for 399?

Sure, also a solution for me. wink

The most important thing is to have the 32 at 499$ as it should be as of now.

Cheers

mjtomlin

@Andhaka: “the prices Apple imposes on storage upgrade”

Even though models are differentiated by the amount of storage, the pricing for each model is not. Apple could sell just one model and get the exact margins they want/need or they could break the line apart using some component (storage) as the model differentiator and price them accordingly so that they can still achieve a margin close to whatever their target margin is for the entire line.

I’m going to guess that Apple’s ideal margin is somewhere close to the mid-tier model’s margin. Why? Probably because they believe this model will sell the best. So, Apple is making less then they want on the low end and more on the high end, these margins average themselves out and (hopefully) allow Apple to make their target margin for this line of products.

Log-in to comment