Teardown reveals thin profit margin on Mac Mini

El Segundo (CA) – Apple may rake in stunning profits on its iPods and iPhones, but as far as computers are concerned, the company cannot break out of the common price pressure that dominates the market these days. According to iSuppli, Apple spends 62% of the retail price of the Mac Mini just on hardware, which makes the device much less attractive than Apple’s gadgets, at least from a financial perspective.

By now, we are used to those huge margins of the iPhone and iPods, some of which allow Apple to pocket 50% or more as pure profit. However, we also know that in computers, there are different rules and Apple has to adjust somewhat to a much more competitive landscape, especially since the company tries to capture more market share.

According to iSuppli, the bill of materials (BOM) of the $599 entry-level Mac Mini is $376.20, a number that climbs to $387.14 when manufacturing costs are added. Everything beyond that, including the cost of intellectual property, royalties and licensing fees, software, software loading and test, shipping, marketing, shipping and other channel costs, are not included. iSuppli does not provide any indication how much those costs will add up to, but industry sources told TG Daily that Apple may pay another $100 to get the Mac Mini on your door step. In the end, the bottom line may be close to $500 for the basic device, cutting Apple’s profit margin down to about 17 – 20%.

Of course, that percentage will grow significantly when you upgrade to the $799 Mac Mini, which upgrades the main memory from 1 to 2 GB and the hard drive from 120 to 320 GB. Add a 2.26 GHz processor instead of the standard 2.0 GHz chip, double the memory and you will pay more than $1000 – and help Apple increase its margins dramatically.

The main cost in the basic Mac Mini is the 2.0 GHz Core 2 Duo P7350 CPU at an estimated price of $118.35. Apple charges $150 extra for an upgrade to a 2.26 GHz CPU. The Nvidia 9400M graphics chip costs about $65 and the 120 GB hard drive about $46, iSuppli estimates. The 1 GB memory chip is listed for $10. The Mac Mini’s optical disc drive a Pioneer DVD±R DL/DVD±RW/CD-RW 8 x speed drive is priced at $32.

“Unlike most desktop computers from other brands, the Mac Mini and, indeed, Apple’s entire Mac line make extensive use of components designed for notebook computers,” said Andrew Rassweiler, director and principal analyst for iSuppli. “This enables the Mini and other members of Apple’s computer line to achieve their very sleek and compact form factors, and to reduce energy consumption. However, the use of these components, along with other cost adders like software, yields a computer that is more expensive to make.”

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