November 06, 2012, 7:41 AM — The new iPad Mini costs Apple just under $200 in materials and manufacturing, an analyst said today, putting an exclamation point on the company's devotion to high profit margins.
IHS iSuppli, which regularly tears apart electronic devices to estimate a "bill of materials," or BOM, pegged the lowest-priced iPad Mini's component costs at $188, with an additional $10 to account for manufacturing. The total of $198 does not include other costs, such as research and development, marketing or capital expenses.
With the 16GB iPad Mini's retail price of $329, the $131 represented a margin of nearly 40%, slightly higher than the 37% margin iSuppli estimated Apple earned on each third-generation iPad when that model debuted last March.
The more expansive configurations -- 32GB and 64GB -- add even more to Apple's bottom line, said Andrew Rassweiler, iSuppli's senior principal analyst for teardowns, in an interview today. Calling Apple's incremental cost for the additional memory "almost insignificant," he and his team put the extra income at $90 for the 32GB, $162 for the 64GB device, both above and beyond the $131 for the 16GB model.
Margins for those Minis range from 52% for the 32GB to 55% for the 64GB device.
"From a cost perspective, the BOM shows that Apple knows how to maintain hardware margins, whether it's a new product or a 'respin,'" said Rassweiler, referring to the fourth-generation iPad, which Apple also launched two weeks ago.
Sameer Singh, founder of Tech-Thoughts, agreed. "The margins do appear to be in line with other iPads," he said via email today.
In August, Singh estimated the materials and manufacturing costs of a then-only-rumored 16GB iPad Mini at $189, or within 5% of iSuppli's Monday number. Later, he used his ball parked BOM to dismiss speculation that Apple would price the smaller tablet at $249.
Apple's business model has always been to make its profit on the hardware, with any additional income -- from music, apps, extra iCloud storage space and the like -- as simply gravy. The company did not deviate from that philosophy even as it entered the smaller, lower-priced tablet market.
Its model is markedly different from rivals in the space, such as Google and Amazon, which sell their 7-in. tablets at or near cost, expecting to generate profit from sales of software, other content and services.
"Amazon and Google will continue to grab market share with their pricing model, but it doesn't seem like Apple will look to compete directly with them," said Singh.
iSuppli gleaned other insights from the teardown and BOM estimate.