Wednesday, April 7, 2010

iPad Also Not Razor-and-Blades

Just as Apple profits on iPods and iPhones regardless where users get their music, so too does Apple profit on the iPad. (And now that Apple's accounting has changed, that profit is easier to see.) The estimated per-unit manufacturing cost is approximately half the price of the lowest-end unit, with higher-end units commanding more premium.

While people have been focusing on content and applications in their analysis of the iPad as a success for Apple, it's clear that Apple will be doing just fine on the hardware – not taking a beating on the units in the hope of making it up on content or applications.

The breakdown cost also suggests a ceiling on Apple's per-unit costs on its next generation of phone-sized devices (iPod Touch and fourth-gen iPhones), which presumably have many similar components but a much smaller (and thus cheaper, and lower-power) touch screen (and battery).

Rather than having profit driven out by competition, Apple has avoided becoming a mere commodity vendor despite a couple of years in the phone business. Moreover, it's beginning to show it can make good money in the <$1000 computer market, a place where competitors struggle to make any profit at all and find themselves selling software placement to third parties in order to make a per-unit profit. At Apple, application revenues aren't the dealmaker, they're pure gravy.

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