Previewed at WWDC, launching in the fall.
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.
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.
"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.
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.
Tags: Tim Cook, IHS iSuppli
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43 months ago
I've never seen one that is anywhere close to being accurate," Cook said. "The actual costs are much cheaper." (/s)
43 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 ;)
43 months ago
$200 billion in the bank, $60+ billion a year in profit. Yep, definitely low margins.
43 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.
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.
43 months ago
What is there to defend? You made a completely false implication.
And you proved my point. :)
43 months ago
As far as the watch profit margins I think Apple will make the most profit on the bands and not on the watches themselves.
43 months ago
And those statistics have absolutely nothing to do with Apple Watch margins. Unless I'm missing the part where Tim Cook says that all of Apple's products have low margins?
Sometimes you just have to bend really far backwards to complain, I guess.
And sometimes defend no matter what. :) Not to mention that the article states Apple products, not just the watch.
43 months ago
I'm amazed at the lengths people go to defend anything Apple says or does...even when it's deflecting the fact they make ridiculous margins on their stuff.
Meanwhile insurance companies, big pharma and the oil industry get crucified if they dare to be profitable.
Guess that's one of the perks of making electronic toys everybody loves...
Meanwhile insurance companies, big pharma and the oil industry get crucified if they dare to be profitable.
Guess that's one of the perks of making electronic toys everybody loves...
43 months ago
no, people are just speculating on a Bill of Material (BoM)
Nothing wrong with speculating that the BoM on the watch is $200 USD, that's probably accurate. A BoM does not take into account any other factors of production, it's not within its scope.
These factors are generally amortized throughout the lifetime of the product, as efficiencies are realized (people get more efficient at producing it, decreased R&D costs through yearly incremental upgrades)
I ignore everything that comes out of Cook's mouth - they're just words.
Nothing wrong with speculating that the BoM on the watch is $200 USD, that's probably accurate. A BoM does not take into account any other factors of production, it's not within its scope.
These factors are generally amortized throughout the lifetime of the product, as efficiencies are realized (people get more efficient at producing it, decreased R&D costs through yearly incremental upgrades)
I ignore everything that comes out of Cook's mouth - they're just words.
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