Apple Leaves Room For iPad Discounts - InformationWeek

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Apple Leaves Room For iPad Discounts

The iPad's manufacturing cost is less than half the retail price, giving Apple flexibility to lower the price to boost sales.

Apple iPad Launch in Pictures
(click image for larger view)
Apple iPad Launch in Pictures
Apple spends less than half the iPad's retail price in making the tablet computer, giving the company some flexibility in lowering the device's price if needed to boost sales, a teardown estimate released Wednesday showed.

The component and manufacturing cost for the iPad ranges from $229.35 to $346.15, depending on the model, according to a "virtual teardown" by market research firm iSuppli. The percentage when compared to the retail price ranges from 39% to 46%.

In estimating the cost of making the iPad, iSuppli depended on Apple's public description of iPad components. The device, introduced Jan. 27, is scheduled to be available in late March. In addition, iSuppli's estimate does not include other expenses, such as software, royalties, and licensing fees.

Nevertheless, iSuppli's research is an indication of the device's profitability, and a reflection of how much flexibility Apple would have if the company needs to lower the price in order to attract customers in today's market of low-cost PCs. However, many analysts believe that the iPad's entry-level price of $499 is sufficiently low to attract more than just Apple fans.

Apple plans to release six iPad models, three with access to 3G wireless data networks and three with only Wi-Fi connections. Each will have storage options of 16 GB, 32 GB, and 64 GB.

The least profitable model is the 16-GB iPad without 3G network access, which costs $229.35 to make and will sell for $499, according to iSuppli's estimates. The most profitable model is the 32-GB iPad with 3G network access, which costs $287.15 to make and will sell for $729.

The most expensive component in the iPad is the display and touchscreen interface that costs $80 for all models. The 9.7-inch display is more than twice the size of the iPhone 3GS screen and costs five times as much, according to iSuppli. The iPad touchscreen is most likely made by LG Display and Innolux.

The second most expensive component is the NAND flash memory used for storage. Depending on the amount of memory, the device's price ranges from $29.50 to $118, iSuppli said. Samsung Electronics and Toshiba are the likely suppliers.

The third most expensive component is the A4 processor that was probably designed by low-power processor specialist PA Semi, a fabless semiconductor company Apple acquired in 2008. iSuppli believes the processor integrates an ARM RISC architecture microprocessor and a graphics processing unit. Samsung is the most likely manufacturer.

Some analysts believe the iPad marks the start of a new computer category called the media tablet. ABI Research estimates the market could reach 4 million shipments this year, growing to 57 million units annually by 2015.

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