Unpeeling Apple's Nano

BusinessWeek writes that iSuppli purchased a 2GB iPod nano and did a teardown of the device that retails for $199. The verdict?

It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%. That's consistent with the margins on earlier iPod versions and serves as a reminder of what a profit machine the iPod family of products has become for Apple since it was introduced in 2001.

Creative Strategies analyst Tim Bajarin said, "Historically, Steve [Jobs] won't accept anything less than 20% gross margin on any produc. In the rare cases when the gross margins have dropped below that, it has been a fluke."

iSuppli also discovered who supplied the innards to the nano. Cypress Semiconductor was the big winner, at the expense of Synaptics, who "lost out to an Apple-designed click wheel that has contains a 55-cent chip from Cypress." According to David Carey at Portelligent, the "Cypress chip appears to save Apple about 45 cents on a comparable Synaptics chip, which costs about $1."

Chris Crotty at iSuppli also found that the nano used a chip from audio-chip supplier PortalPlayer over a chip from SigmaTel, which is used in the flash-based Shuffle. "PortalPlayer ruled with hard-drive players, and Sigmatel ruled flash players. Now, we're seeing them invade each other's turf," said Crotty.

Crotty also estimated that "Apple is paying $54 for 2 gigabytes worth of memory [from Samsung]. That would cost any other manufacturer $90, giving Apple a discount of about 40%."
Crotty commented, "How do you compete if you can't get the memory you need? And even if you can get it, you're not able to sell the volume needed to negotiate a better price."

"The market is heading toward consolidation, with its own big three, Apple, Samsung, and Sony," Crotty added.

If Apple is indeed making almost 50 percent margins than there definitely is room to drop prices or add more memory to bring out a 6GB model. An imposing lineup would be the 1GB Shuffle at $99, the 2GB nano at $149 and the 4GB nano at $199. Now I'd buy several at those prices...