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Apple Making Slightly Less Profit Off iPad 3rd Gen

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People obsessed with the “actual” cost of the electronics they own will love this. Analysts from UBM TechInsights released some numbers today that suggests Apple is making slightly less profit from the new 4G LTE iPad than they did off the iPad 2. They guesstimated that the iPad’s components come to $310. Retail price is $629, meaning a 51% profit margin.

The profit margin was 57% for the original iPad and 53% for the iPad 2. Supposedly. And based only on component costs.

The extra percentage points went away due to higher cost components like the Retina Display and LTE radio. Apple chose to keep the tablet at the same price and thus lose out on some money. Considering the company has more money than many developed countries, I don’t think this is an issue for them.

(Read: Apple Worth Half a Trillion Dollars After iPad 3 Event Announcement)

iPad components cost

Backing up just a second — I find this kind of worrying over the components and cost and whatever useless and silly. You’re going to see tons of posts across the tech blogosphere proclaiming how Apple is making a sliver less money or how they could sell the iPad for less and just destroy other tablets if they wanted to and the Apple tax and a bunch of other stuff that’s not based in reality. Because the base cost of components does not represent the true cost of any device, including the iPad.

It never fails to amuse me how consumers ignore how much goes into getting a product from the factory to the store (or their doorstep). The components are just the first step.

Apple Foxconn China

Someone has to assemble them, after all. The task falls to those poor Foxconn workers that have been in the news recently and Apple fanbois wish to ignore by pointing everywhere else but at their own complicit selves. Regardless of how you feel or what you believe about their wages or working conditions, Apple has to pay Foxconn to assemble the components that cost $310, thus adding to the cost of the device.

(Read: ABC Nightline Visits Foxconn To See How Apple Devices Are Made [Video])

Then someone has to deal with the boxes (not sure if these and the cords are included in the “Other” or “supporting materials” in that chart), pack the iPads in them, and then put them on a boat to be shipped. They make their long way here from China, where someone then has to ship them to Apple stores and customers. Again, all of this costs money and adds to the price of the iPad.

Another aspect people conveniently forget: marketing and advertisements. Those billboards don’t magically come into existence. Commercials don’t make themselves.

No doubt Apple is making a lot of money off of these tablets. I doubt the profit margin is as high as 50%, but that doesn’t mean it’s not significant. That’s why they have so much cash. Still, if you only think about component cost and then start spinning some ridiculous stuff about how this means the iPad could cost less, you’re not thinking about the whole picture.

Could they drop the price of the new iPads by $100 and still make enough profit? Maybe. But consider this: other device manufacturers operate on thinner margins than Apple does, which causes all sorts of consternation, especially among retailers. (This is why the likes of Staples and Best Buy are in a rage to upsell you on warranties and other crap you don’t need. They aren’t making much off the actual device sale.) Those other device makers are probably not hurting for money, but they sure aren’t worth 500 billion dollars.

(Read: Three Things Apple is Worth More Than)

K. T. is a lover of technology, gadgets, and all things geek. She has the enviable job of playing with evaluating mobile tech and apps all day. Follow K. T. on Twitter @KTBradford, on Google+ and Tumblr or email her via her website, KTBradford.com.

7 Comments

  1. Amin Vassefi

    03/10/2012 at 2:05 pm

    There is huge difference between something being an updated version and something being next generation. 

  2. John Daily

    03/11/2012 at 11:48 am

    There’s also the not-inconsiderable cost of developing and supporting the operating system, the iTunes store, iCloud…and that’s ignoring the costs of R&D for the hardware itself. Cellular technology testing, battery research, ARM customization…

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