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.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.
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.
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.