iSuppli: iPod shuffle’s bill of material just $22, fat margin

Chicago (IL) – Apple’s new iPod shuffle carries the biggest profit margin of all
iPod models, according to the just released tear-down analysis by
iSuppli. The research firm estimates the bill of materials to make the $79
music player at just $21.77, or 28% of its retail price.

Apple’s new iPod shuffle is Apple’s tiniest music player ever, you
don’t want to dismiss its potential on positively impacting  Apple’s bottom line. According to
the latest iSuppli tear-down analysis, the bill of materials for the 4 GB
iPod shuffle comes down to just $21.77, including the device itself, the headphones and packaging. This leaves Apple with $57.23 per unit to cover the cost of the design, software, patent
royalties, marketing, transportation and sales. The fact that the cost
of components to build the iPod shuffle is just 28% of its retail price
enables Apple to earn a fat margin on the minuscule music player. In
fact, iPod shuffle has the biggest margin of all iPods in the lineup.

In comparison, the bill of materials for the first generation iPod touch
and the third generation iPod nano (both released in 2007) came down to
49% and 40% of their respective $299 retail prices. In fact, this
latest iPod shuffle is Apple’s most profitable iPod from a profit
margin perspective. Apple’s ability to cash in on the new iPod shuffle
is further boosted by replacing the 2 GB ($49) and 4 GB ($79) models of
previous generation with only one $79 model, a move that raised the
entry-ticket price to the iPod world from $49 to $79.

According to iSuppli, Samsung is the biggest beneficiary since it
provides the flash memory, the primary chip and other key components that make
up the iPod shuffle.  The research firm estimated the cost of Samsung’s 4 GB
flash memory and primary chip at roughly $6 each. The lithium ion
battery that runs the music player is estimated at $1.20 and is, in iSuppli’s words, “the smallest we’ve ever seen.”

The iSuppli analyst Andrew Rassweiler warned that Apple may also be using flash memory from Toshiba and Hynix Semiconductor, the two companies who, along with Samsung, feed Apple’s hunger for flash memory chips. In addition to Samsung, Business Week estimated that Texas Instruments, NXP Semiconductor and On Semiconductor all provided components for the iPod shuffle internals. Rassweiler praised engineering feats and optimizations evident in the miniature music player. “It’s almost like six dollars worth of flash memory tied to some flash and a battery and not much else,” he said. “It’s very basic and downsized.”

The research firm noted that the iPod shuffle packs capacitors and
resistors that are half the size than previously, actually too small to
indicate a manufacturer. “Until recently we didn’t see passive components quite this small,” Rassweiler said. “Here you see them working on the cutting edge, even on the passives.”
Watchful readers could note that the tiny flash-based player now packs
the same 1,000 songs in fraction of what was the size of the first
hard-drive based iPod.