iPod nano teardown shows cost-cutting

Apple is trying to widen its profit margins on iPods with cheaper components, a new teardown of the third-generation Nano suggests. Conducting by the research firm iSuppli, the teardown notes that the parts of the 4GB Nano -- selling for $150 -- cost less than $60, while the parts of the 8GB model ($200) are under $83. In each case this is a reduction of more than $13 over the second-generation Nanos, and $31 over the 2GB Nano from 2005. It should be noted however that these amounts do not reflect other costs, such as assembly, packaging, distribution and marketing.

The slashing of Nano overhead could be especially beneficial to Apple, as the player is typically Apple's most popular, now amounting to roughly half of all iPods sold; for the last three quarters alone, this may equal 20 million Nanos out of 41 million total. iSuppli expects Apple to have sold at least 23 million Nanos by the end of fiscal year 2007, with another 28 million selling in 2008.

One analyst with iSuppli, Chris Crotty, suggests that Apple has managed to make the Nano cheaper by forcing competition. The new supplier of the clickwheel is Synpatics, which provided similar parts for the original iPod, but was eventually replaced by Cypress Semiconductor. Switching back to Synpatics has saved 13¢ per part, but Apple has also chosen to diversify memory suppliers, adding Intel and Micron to a list including Hynix, Toshiba and Samsung.

Shaw Wu of American Technology Research observes that some of the increased margins may be dampened by the need to pay for warranty repairs and exchanges. Taking this and other factors into account, Wu says, Apple's gross margins on products tend to hover between 30 and 35 percent, Nanos included.

Filed under: Apple