Tim Cook: Component Cost Breakdowns on Apple Products Are Nowhere Close to Being Accurate

During today's Q2 2015 earnings call, Apple CEO Tim Cook noted that Apple Watch margins are lower than the company average, and on a followup question about those margins in the context of the Apple Watch Edition's high price, Cook commented on the inaccuracy of estimated cost breakdowns on Apple products.

"I haven't seen [them for Apple Watch], but generally there are cost breakdowns around our products that are much different than the reality. I've never seen one that is anywhere close to being accurate," Cook said. He went on to say that the Apple Watch's functionality is "absolutely incredible" with a lot of new features and innovative technology.

Apple-Watch
We haven't seen cost breakdowns on the components of the Apple Watch hinting at a possible base unit price that would reveal Apple's profit margin, but such component breakdowns are often shared by analysts following device teardowns. The iPhone 6 and 6 Plus, for example, were estimated to have a parts and labor cost of approximately $200, resulting in a 69 percent gross profit margin based on the device's $649 base selling price.

iPhone 5s component cost was estimated to begin at $199, and iPad Air component cost was estimated to begin at $274. All of these estimates, which come from IHS iSuppli, include only part costs, leaving out other expenses like research and development, software creation, marketing, and distribution, which may explain Cook's comments on inaccuracy.

According to Cook, it's "intuitive" that Apple Watch margins would be lower than the company average during the first quarter, as the first quarter of any new product is "a learning period." Cook declined to provide guidance beyond the current quarter, but Apple Watch profit margins could improve in the future as component costs drop as they do over time with any new technology.

Top Rated Comments

Tubamajuba Avatar
93 months ago
For as long as I can remember, people seem to think R&D is free.
Score: 74 Votes (Like | Disagree)
keysofanxiety Avatar
93 months ago
I've never seen one that is anywhere close to being accurate," Cook said. "The actual costs are much cheaper." (/s)
Score: 36 Votes (Like | Disagree)
AppleScruff1 Avatar
93 months ago
$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.
Score: 16 Votes (Like | Disagree)
ttss6 Avatar
93 months ago
For as long as I can remember, people seem to think R&D is free.

When it comes to Samsung that is a reality. All they gotta do is tune into the Apple Keynotes and start copying ;)
Score: 16 Votes (Like | Disagree)
RamGuy Avatar
93 months ago
One thing I have always found funny is how various web-sites claims to figure out the overall cost of a devices by looking at the components etc..

First of, how do they even begin to measure this in the first place? Do they go by standard pricing for each component or are they doing some creative guess work in order to be smart about what Apple might pay for the various components? Because I can tell you for a fact that Apple do not pay regular prices for things like NAND, Sony camera modules etc that goes into their products as they are ordering hundreds of millions of these things..

No one is capable of knowing what kind of agreements that goes into making orders as huge as these, they are by far the largest in the industry.


You also have to take into account all the R&D that goes into each and every product, it's software, firmware, drivers etc.. Compared to the various other companies Apple is mostly doing all their work themselves in-terms for software development. Whereas Sony, Samsung etc.. Get their software delivered by Google, with most drivers and firmware as a part of Android. Apple is actually doing all this work themselves. They do of course have to do some optimisation and whatnot but it's not remotely close to amount of work Apple needs to put in as they are running their very own software, and they also like to have a hand in developing all kinds of drivers and firmwares for the various hardware as well.

They also need to drift the entire ecosystem with App Store etc.. Something Google is handling for the various other OEM's out there in-terms of Android.
Score: 11 Votes (Like | Disagree)
AppleScruff1 Avatar
93 months ago
What is there to defend? You made a completely false implication.
And you proved my point. :)
Score: 9 Votes (Like | Disagree)

Popular Stories

iPhone 14 Pro Purple Front and Back MacRumors Exclusive

iPhone 14 Pro Renders Highlight Multiple Design Changes

Wednesday May 25, 2022 8:56 am PDT by
Leaker Jon Prosser today shared ostensibly accurate renders of the iPhone 14 Pro, providing the most accurate look yet at what the device could look like when it launches later this year. In the latest video on YouTube channel Front Page Tech, Prosser revealed renders of the iPhone 14 Pro made by Apple concept graphic designer Ian Zelbo, highlighting a range of specific design changes...
iPhone 13 Always On Feature

iPhone 14 Pro Screen Refresh Rate Upgrade Could Allow for Always-On Display

Tuesday May 24, 2022 7:23 am PDT by
Last year's iPhone 13 Pro models were the first of Apple's smartphones to come with 120Hz ProMotion displays, and while the two iPhone 14 Pro models will continue to feature the technology, their screens could well boast expanded refresh rate variability this time round. To bring ProMotion displays to the ‌iPhone 13 Pro models‌, Apple adopted LTPO panel technology with variable refresh...
iPad Pro USB C Feature Coral

Deals: Apple's iPad Pro Reaches Up to $449 Off in Amazon's Latest Sales

Wednesday May 25, 2022 10:09 am PDT by
Amazon is marking down a wide variety of 11-inch and 12.9-inch iPad Pro models this week, with prices starting as low as $749.00 for the 11-inch tablet. You'll find the full list of sales below, all of which can be found on Amazon. Note: MacRumors is an affiliate partner with some of these vendors. When you click a link and make a purchase, we may receive a small payment, which helps us keep...
apple account card

Wallet App Now Supports Apple Account Cards on iOS 15.5

Wednesday May 25, 2022 5:01 pm PDT by
Apple appears to have recently updated the Wallet app to allow users to add an Apple Account Card, which displays the Apple credit balance associated with an Apple ID. If you receive an App Store or Apple Store gift card, for example, it is added to an Apple Account that was previously visible in the App Store and Apple Store apps. As of today, the Apple Account balance can also be added to...
Apple Tap to Pay iPhone

Apple Stores Rolling Out iPhone-to-iPhone Contactless Payments Starting Today

Wednesday May 25, 2022 6:54 am PDT by
Apple in February unveiled a new "Tap to Pay on iPhone" feature that will allow compatible iPhones to accept payments via Apple Pay, contactless credit and debit cards, and other digital wallets, with no additional hardware required. Apple began testing the feature at its Apple Park Visitor Center earlier this month, and now Bloomberg's Mark Gurman has tweeted that the feature will begin...
apple wwdc 2022

Apple Shares WWDC 2022 Schedule, Keynote to Take Place June 6 at 10:00 a.m PT

Tuesday May 24, 2022 9:06 am PDT by
Apple today confirmed that the keynote event for the Worldwide Developers Conference will begin at 10:00 a.m. Pacific Time on June 6, the first day of WWDC. The keynote will be an online-only event, though a select number of developers have been invited to the Apple Park campus for a viewing event. In addition to confirming the keynote date and time, Apple has shared the full WWDC 2022...