Friday, January 29, 2010

Does Apple Make More Than $200 On Each $499 iPad?

According to analysts Apple's recently released iPad might actually net the company a profit margin of 42.9% and as high as 52%.

According to the ComputerWorld article Analyst Brian Marshall of BroadPoint AmTech said his review of the cost of the materials inside Apple's 16GB WiFi shows the iPad only costs the company $270.50 to produce. Marshall further estimates the total overall cost is $290.50, a figure that includes a $10 line item dedicated to manufacturing and another $20 set aside for under-warranty service costs.

The company may actually make more profit from the higher end 3G equipped devices, as much as 10% more according to Marshall. The $629 16GB iPad with Wi-Fi and 3G costs Apple $306.50, just $16 more than the Wi-Fi-only model. Users wanting to add the 3G option are actually hit with a $130 premium meaning the company is netting and additional $114 from 3G model or a profit margin of 52%, a jump of nine percentage points.

My thought:

I'll admit I was a bit surprised that Apple came out with such a low price tag on the iPad. I originally thought they would be looking at a low end of at least $700. If Marshall's numbers are right then it would be fairly easy to see why Apple pushed this 1st generation out at the price point. Not only are they making a ton of money from the device but they have lots of headroom to start hacking prices if demand isn't what they expected.

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