New Ipod Nano could bump Apple's profit margin by 20%
El Segundo (CA) - The new Ipod Nanos may offer twice the memory capacity for the price of their respective predecessors at launch, but don't think Apple is giving away anything for free: According to a teardown analysis conducted by Isuppli, Apple fine-tuned the layout and components of the player and is able to build the 4 GB model for less money than the original 2 GB version.
The new edition in Isuppli's teardown series suggests that the bill of materials (BOM) for the new generation and mainstream Ipod Nano comes in at about $72.24 or about 36.3% of the retail price ($199) of the device.
The BOM indicates that Apple has found some ways not only to give the player a fresh new look, but to make some not so obvious enhancements under the hood as well: The first generation 2 GB Ipod Nano also sold for $199, but was estimated to have a BOM of $90.18 or 45.3% of the player's retail price. Compared to the first generation, Apple could have reduced its material cost by almost 20%, according to Isuppli.
Besides the drop in flash pricing, Isuppli mentioned that Apple is now using a Samsung-built system-on-Chip (SoC) that replaces the previous semi-custom PP5021 SoC from Portal Player. According to Isuppli, the new design also features several new customized chips from previous Nano suppliers: Wolfson Microelectronics provides the audio codec and Philips, now called NXP Semiconductors is responsible for the power management. The Samsung SOC, which is based on an ARM microprocessor, includes a flash disk controller, which is a feature that previously was built into a separate part from Silicon Storage Technology (STT).
Ipod Nano teardown. Image courtesy of Isuppli.
Looking at the details of the components of the second-generation Nano, it is apparent that Apple has fine-tuned the structure and cost of the player. Andrew Rassweiler, senior analyst for Isuppli, said that the BOM drop was mainly due to the drop in Flash pricing - Apple is estimated to pay about $42.50 for the 4 GB chip while it was believed to have paid $54 for the 2 GB chip at the launch of the Gen1 player - but there are several other components that allowed Apple to save some money. For example, the PP5021 SoC from Portal Player carried a cost of about $2; this function is now provided a Samsung chip, which Isuppli believes is provided to Apple with a significant discount.
It may appear that Apple's tweaking could affect the quality of the Nano, but Rassweiler said that quite the contrary may be the case. Apple applied some cost shifting and especially improved the much criticized casing of the Nano. Instead of a plastic front and metal back, the new version uses a one-piece aluminum case, which is similar to the previous Ipod Mini. "The new enclosure is rigid than that of the previous Nano," Rassweiler said. The analyst estimates that Apples spends about twice as much on the new case than on the old one.
The BOM does not include packaging, shipping and marketing costs of the device.