Apple is known for wrapping fancy covers around very economically produced products, so it may not be too surprising when the company also achieves a substantial profit margin on its latest portable audio player, iPod nano.

According to market research firm iSuppli, the bill of materials for the 2 GByte version of the iPod nano is $90.18. 77 percent of the total bill are consumed by integrated circuits such as PortalPlayer's 5021C System on Chip (SoC) for audio processing, SigmaTel STMP3550 chip for MP3 audio processing and Cypress Semiconductor's CY8C21434 for the circuitry behind the iPod nano' s trademark Click Wheel interface.

The lion's share of the cost to build the device is taken by the Flash memory chip provided by Samsung. Despite the company slashed pricing for the chip by as much as 50 percent for Apple, iSuppli believes the 2 GByte chip, integrated in a 1 Gbit by 8 configuration, runs for around $54. "By switching from hard drives to flash memory for a key iPod model, Apple has radically altered the dynamics of both the memory market and the MP3 player market," said Chris Crotty, senior analyst for consumer electronics at iSuppli.

The bill of materials does not include manufacturing, shipping and promotional expenses such as marketing and PR. iSuppli did not comment on these factors, but companies typically spend not more than 15-20 percent on these categories, which would put the 2 GByte iPod nano's total cost at well below $120 and the profit margin of the device - which sells for $199 - at more than 40 percent. (THG)