1.”The ‘i’ isn’t for ‘inexpensive.'”
A record 3 million people ordered the latest version of the iPad during the weekend after its debut on March 16 — the strongest launch for the device yet. With prices for the new iPad starting at $499 for the 16GB Wi-Fi only version, experts say consumers are paying a premium for the gadget. But they may not realize that premium could cover the cost of making a second iPad. IHS iSuppli, a technology research company that has studied the cost of the iPad’s components, estimates Apple spends $375.10 to make the 32GB version of the new iPad with 4G LTE connectivity — roughly half the retail price.
And the profit margin grows for the more expensive models. While it costs Apple about $16 more to make the 32GB version of the iPad than the 16GB version, the retail price jumps by $100 from one model to the next, according to the IHS iSuppli. That contrasts with competitors, like Amazon, which loses an estimated $18 for each $200 Kindle Fire it sells after marketing and shipping costs are taken into account, according to RBC Capital Markets. “Apple makes a stunning profit margin on their devices,” says Colin Gillis, an analyst for BGC Partners.
That said, the iPad has generally become more expensive to make while the price has stayed the same, meaning Apple is making less profit on its newer models, says Andrew Rassweiler, senior principal analyst for IHS iSuppli. He points out that iSuppli’s estimate doesn’t include all the costs Apple incurs for producing the iPad such as shipping, engineering teams, potential royalty costs and software. Apple also recently lowered the price of the iPad 2 by $100 to $399, a sign that it is accommodating cost-conscious consumers, says Michael Holt, an analyst for Morningstar.