Those components alone add $39.50 to the cost of the original iPad. Yet, somehow, Apple was able to hold down the total cost of the iPad 2 components list plus manufacturing, perhaps by squeezing out other costs from its supply chain. This may explain why one analyst's predicted price cut for the iPad 2 didn't materialize: (See "Will the hottest thing about iPad 2 be the price?")
Former equities analyst Anton Wahlman noted that with iPad 2, Apple "is probably looking to sell 60 million units worldwide starting this March" compared to about 15 million for iPad 1. The much higher volume gives Apple supply chain leverage. Wahlman wrote: "When you go from planning under 10 million units to 60 million, you can negotiate much better manufacturing prices. Components can also be optimized for cost, to a different degree. Apple is pre-paying for critical parts, such as memory and displays, taking risk out of the contract manufacturers, which pressures the price down."
Squeezing out those extra costs let Apple absorb the higher-priced iPad 2 components, keep the total iPad cost almost level, and keep the consumer price tag unchanged, giving it a price advantage compared to rival Android-based tablets, perhaps for many months.
John Cox covers wireless networking and mobile computing for Network World.
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