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Apple Profits Less To Maintain iPad Price

New iPad has more of just about everything except profit margin for Apple.

Apple's new iPad may earn praise for its technical merits, but it will earn less per sale for the company.

The reason is that Apple's third-generation iPad requires more expensive components than its predecessor, according to research from UBM TechInsights, part of the company that operates InformationWeek. But rather than offer its latest tablet at a higher price, Apple has opted to keep prices flat, ensuring a lower profit margin.

Even so, Apple's profit margin has plenty of padding. For the 16GB 4G version of the new iPad, which lists for $629, UBM TechInsights estimates the manufacturing cost to be $310, based on component pricing from March 2012. That works out to a 51% profit margin.

The 3G 16GB version of the iPad 2 initially sold for $629 as well, but Apple has dropped the price to $529. Even so, its manufacturing cost is estimated to be $248.07, making Apple's profit margin 53%. Last March, when the 3G 16GB iPad 2 was priced at $629, its cost is estimated to have been $276.27, a 56% profit margin.

[ Find out how the new iPad stacks up to the competition. Read iPads Vs. Android: 3-Way Tablet Shootout. ]

The original iPad had an even higher profit margin, 57%, based on a $629 price point and a $270.86 manufacturing cost.

Back in 2010, Apple had no real competition in the tablet market. Though CEO Tim Cook at Apple's media event on Wednesday suggested that competing tablets aren't gaining any traction with customers, the growing number of iPad alternatives--particularly the more affordable Amazon Kindle Fire--appear to be having some effect on Apple's margins.

The most costly component in the new iPad is of course the Retina display. Display costs have gone from an estimated $49.50 per device to $70 per device. On a percentage basis, the cost of the new 5MP camera rose more: from $5 to $12.50.

Also noteworthy is the increased cost of the battery, which went from $22 in the iPad 2 to $30 in the new iPad. Apple had to use a more powerful battery to make sure that the new iPad could last as long as its predecessor while running a more powerful processor, higher-resolution screen, and 4G LTE hardware.

Even if the new iPad is about $34 more expensive to manufacture than the iPad 2 was when it debuted, Apple can afford it: The company is sitting on cash reserves of close to $100 billion. It can afford a bit less profit to maintain its market dominance.

Windows is currently a nobody in the tablet market. That could change with the release of Windows 8, the first version designed for touch screens and the tablet form factor. With the new Metro user interface, Microsoft will try to serve both tablet and desktop markets. Can it succeed? Find out at our Byte webcast, What Impact Will Windows 8 Have On The Tablet Market?. It happens March 14. (Free registration required.)

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User Rank: Apprentice
3/9/2012 | 8:37:08 PM
re: Apple Profits Less To Maintain iPad Price
I would love to learn how these prices change over time. It would be great if you could write a follow-up about that in a few months.

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