New iPad may shave Apple’s tablet margins

March 08, 2012

rick.merritt-March 08, 2012

SAN JOSE, Calif. – Apple will cut into its profit margins--but only slightly--with its latest iPad and discounts on the iPad 2, according to estimates from UBM TechInsights.

The new iPad announced yesterday will have an estimated bill of materials cost of $310, up from $270.86 on the original iPad and $276.27 on the iPad 2 based on versions at launch using 16 Gbytes memory. By selling all three at the same $629 price, Apple is cutting its profit margins about five points from 56-57 percent on the first two generation products to 51 percent on the new iPad, UBM TechInsights projected.

Apple’s profit margin on the iPad 2 will dip to an estimated 53 percent when it is discounted to $529 at the release of the new model. The iPad 2 sustains less of a hit because prices of its components are projected to have come down since its launch last year resulting in a current bill of materials cost of $248.07 for the 2012 version of the iPad 2, it said.

Most of the new iPad’s higher costs are split fairly equally between four major components. The new higher resolution display is expected to cost about $12 more, the new A5X processor adds about $8 and the LTE modem and expanded battery add about $7 each to the new iPad’s cost, UBM TechInsights estimated.

The analyst firm cautioned that its estimates are projections that it will further refine once the tablet is available for a full teardown inspection. UBM TechInsights is part of UBM LLC, the company that publishes EE Times.

“The bottom line is the new iPad’s margin should take a little hit because of some expensive adders like LTE, the high-res display and camera, a bigger battery and faster processor,” said Jeff Brown, a senior UBM TechInsights analyst. Apple “will hope to offset that margin decrease with a slightly higher margin on the iPad 2,” he said.

Apple “also may make up some extra margin by negotiating some higher cuts of the service plans,” with carriers he added.

Separately IHS iSuppli estimated Apple will nearly double its spending on displays in 2012. The higher volumes may help the company negotiate lower component costs, further improving margins.

Profits also could be higher on models sporting more memory, said Brown.

Despite the shaved margins, Apple appears to be in the cat bird’s seat, selling a premium product. Prices for Android tablets dipped last year in the wake of the release of the low cost Amazon Kindle Fire, according to IHS iSuppli.

Click on image to enlarge.

Click on image to enlarge.

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