Friday, February 25, 2005

IDC: The iPod shuffle has decent margins

Macworld has published an article detailing IDC's comments about the costs of the iPod shuffle. It states:
The iPod shuffle's flash memory, which was supplied by South Korea's Samsung Electronics in the model examined by IDC, is estimated to be the most expensive component used in the player by far, said IdaRose Sylvester, a senior semiconductor research analyst at IDC.

She estimated the 512MB of flash in the cheaper of Apple's two iPod shuffle models costs the company around $37.50 for each player. That's about two thirds of the estimated total $59 that Apple spends on materials needed to make each 512MB iPod shuffle. The product retails for $99 giving the company a profit of about $40, or roughly 40 per cent.
Although the above numbers do not include assembly and other costs, the iPod shuffle does seem like a fairly simple device overall and thus such costs are likely low. Consequently, margins on the iPod shuffles are likely reasonably high. Specifically, despite the very low prices of the shuffle, this screenless iPod is not a loss leader. Apple is making decent profit off of each and every iPod shuffle sold, while still undercutting prices of competitors' flash-based players.

[Update 2005-01-27]

Apple's CFO Peter Oppenheimer contradicts the IDC claims. He states that the average 2004 margin on the iPods was 20 percent, and that the shuffle's margin is lower. While this does not mean the shuffle is a loss leader, perhaps the margins on the shuffle would be better described as mediocre by Apple's standards. However, it will still be a significant profit generator for Apple, given the shuffle's high volumes.

2 comments:

Scott said...

I could have sworn Apple reported margins for 'regular' iPods to be ~20% and that in the recent conference call Oppenheimer stated that the shuffle's margins were lower?

I wonder how good these estimates are, and if they take into account R&D?

Eug said...

Scott, see the update to the article.