Apple cuts profit margin with new iPad

Posted by Emma Woollacott

Apple's making a smaller profit on its new iPads than on the previous model, a teardown by research firm iSuppli indicates.

According to iSuppli, the costs for the new model are about ten percent higher. It says that the 32 GB version with 4G Long Term Evolution (LTE) wireless capability carries a bill of materials  of $364.35, with manufacturing costs of $10.75, bringing the total to $375.10 - half the retail price.

The very lowest-end version of the new iPad, with 16GB memory and no LTE, carries a combined bill of materials and manufacturing cost of $316. The highest-end model, with 64GB memory and integrated LTE, has a total bill of materials and manufacturing cost of $408.70.

The big winner, says iSuppli, is Samsung. It's supplying both the $23 applications processor and the new Retina display - the most expensive single component in the tablet. Combined, says iSuppli, 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.

In many cases, the company points out, Samsung's supplying the NAND flash too - although there are other suppliers including Toshiba and Hynix Semiconductor. And, it says, it believes that Samsung may be responsible for the device's battery cells - which would mean Samsung accounting for nearly 50 percent of the new iPad’s bill of materials.

"The Retina display represents the centerpiece of the new iPad and is the most obvious enhancement in features compared to previous-generation models," says Andrew Rassweiler, senior principal analyst, 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."

Initially, Apple was hoping to source the display from Sharp and LG Display as well as Samsung. However, difficulties with the manufacturing process appear to have left Samsung as the sole supplier, at least for the time being.

According to Juniper Research, while the iPad continues to outsell the competition to a huge degree, it's market share has slipped from 84.1 percent in 2010 to 59.0 percent in 2011.

"For those who are still in the market for a tablet, with many retailers slashing the price of iPad-competitors by around $100, Apple has carried over its iPhone strategy of offering older generations at a lower price point – one which has seen shipments of the phone hitting ever-higher dizzy heights," says analyst Daniel Ashdown.

"With the iPad 2 now being offered at $399, Apple is trying to kill off the competition sold by retailers at discounted prices."