El Segundo (CA) – Apple not only has reduced the size of its iPod Nano, it also has trimmed the bill of materials (BOM) of the portable media player to keep profit margins stable.
The latest installment of iSuppli’s teardown series of consumer electronics devices once more sheds light on Apple’s iPod pricing and product strategy. According to the market research firm, the recently introduced iPod Nano is, in its 4 GB version, the cheapest iPod Nano Apple ever produced. The bill of materials, which sums up the cost of components and other materials used to build the device, is about $58.85 for a product that Apple sells for $149. The 8 GB model (MSRP $199) carries a BOM of $82.85, iSuppli estimates.
Looking back, iSuppli estimated the BOM for the first-generation 2 GB iPod Nano at $90.18 and the second-generation 4 GB iPod Nano at $72.24. While the BOM appears to have dropped consistently over the past two years, Apple’s profit margin has been relatively stable. The first-generation 2 GB Nano’s BOM was estimated at about 45% of the selling price ($199), according to iSuppli; the second generation boosted the profit margin with the BOM accounting for only 36% of the selling price ($199). The third-generation BOM is slightly up to 39% for the 4 GB model and up to 42% for the 8 GB Nano, if iSuppli’s numbers are correct.
The BOM does not include other costs associated with the development and the sales process, such as research, marketing and shipping.
iSuppli also found that Apple has become very selective about the products it integrates into its Nanos. There are a few new suppliers, including Micron, Dialog Semiconductor, Intersil and Synaptics, whose products can be found in the new players.
“The changes in components have resulted in significant cost reductions in the Nano design, allowing Apple to offer a product that is less expensive to build and that has enhanced features compared to its predecessor,” said Andrew Rassweiler, senior analyst and teardown services manager for iSuppli.
One of the winners in the Nano appears to be Micron, which has been added to flash supplier list. iSuppli estimates that the NAND flash memory in the Nano is worth about $24 in the 4 GB version and $48 in the 8 GB model, which makes the chip the single most expensive component in the device. Apple’s primary suppliers of NAND flash historically have been Samsung, Toshiba and Hynix.
iSuppli estimates that total iPod Nano shipments will reach about 23 million units in 2007 and 27.9 million during 2008.