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What the iPad costs Apple to make

by Scott Bicheno on 11 February 2010, 10:37

Tags: Apple (NASDAQ:AAPL), iSuppli

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The single biggest achievement of Apple is its ability to generate much more margin than any of its competitors. It's the technology luxury brand, which has convinced its customers to pay more for its products than the equivalent alternative through a combination of innovation, design and superlative marketing.

Never has this been better illustrated, it seems, than with the iPad. When we first saw the pricing, we were impressed by the starting level of $499. However, when we saw that Apple was charging $130 for a 3G module and $100 for 16GB of flash storage, we realised where the catch was.

Helpfully, market researcher iSuppli has published an estimated breakdown of the bill of materials (BoM) of the iPad. Needless to say, this has been done without the cooperation of Apple, so it can't be taken too literally, but it looks like a pretty good stab at working out what it costs Apple to manufacture.

The entry-level version is estimated to cost $229.35 to make, which equates to an initial markup of nearly 118 percent. However, iSuppli reckons the total additional cost of the 3G/GPS functionality is $28.30 and Apple charges customers over 4.5 times that amount for the feature. It estimates the cost of 16GB of flash to be $29.50, while Apple charges over three times that amount for it in the 32GB version. This multiplier is halved in the move from 32GB to 64GB.

It comes as no surprise, therefore, that the highest initial markup applies to the 32GB 3G version, with $729 being more than 150 percent greater on $287.15.