The next-generation iPad is breaking sales records after its first weekend on the market. But is Apple taking home a little less on each sale by keeping retail price points the same?
The new iPad is more expensive to produce than the iPad 2. The "Retina Display" that consumers are raving about is largely to blame. So says IHS iSuppli.
Specifically, the new 32GB iPad and 4G wireless capability costs $364.35, according to an iSuppli teardown assessment. When the $10.75 manufacturing costs are added in, the cost to produce the new iPad rises to $375.10. The 16GB 4G LTE version costs $347.55, and the 64GB version is estimated at $397.95.
NAND Helps Drive Profits
According to the teardown analysis, the new iPad's Retina Display represents the most expensive single component in the tablet, at $87, while the applications processor costs an estimated $23. Combined, this gives Samsung a 30.2 percent share of the 32GB LTE version of the new iPad's bill of materials, the largest for any supplier.
"The Retina Display represents the centerpiece of the new iPad and is the most obvious enhancement in features compared to previous-generation models," said Andrew Rassweiler, senior principal analyst of teardown services at IHS. "The first two generations of the iPad employed the same type of display -- a screen with resolution of 1,024 by 768 pixels. For the third-generation new iPad, Apple has taken a significant step up in display capabilities and expense, at four times the resolution and 53 percent more cost."
The new iPad's Retina Display has a resolution of 2,048x1,536 pixels. The $87 cost accounts for 24 percent of the bill of materials for the new iPad with 32GB NAND and LTE, making the Retina Display the most expensive single component in the tablet.
"The NAND flash memory is one of the key profit-generating components for Apple in the new iPad line, as it has been in previous iPads and in the iPhone family," Rassweiler noted. "Apple makes far and away more money in selling consumers NAND flash than NAND flash manufacturers make selling it to Apple. And the more flash in the iPad, the higher the profit margin there is for Apple."
Apple Not Hurting
But some analysts aren't so sure the supposed higher costs translates to lower profits for Apple. Michael Gartenberg, an analyst at Gartner, said industry watchers don't know what Apple's profit margins are on the iPad because Apple does not reveal those figures.
"What we have is people making estimates about what things cost. They don't know what Apple is paying, what deals they have with suppliers, how much of these materials Apple has locked into place," Gartenberg said. "Certainly, Apple is not in the business of losing money on devices."
As Gartenberg sees it, Apple has shown that it knows how to carefully balance the cost of materials and the cost of marketing with the price points that consumers expect to pay -- and still manage to earn a profit. And consumers are willing to stand in line to pay in record-breaking numbers.
"AT&T reported a record number of sales and activations for the new iPad over the weekend and it seems that the latest model is resonating with consumers who apparently value the differentiation the new model brings to market. Sales are very brisk," Gartenberg said.
"This is not the sales season for consumer electronics. Typically, consumers buy electronics more at other times of the year. So for the new iPad to be doing very well in what is the off season for consumer electronics is a pretty good sign for how this is going play out the rest of the year."