Apple's iPad costs as little as $260 to build, but nearly half of that goes toward the 9.7-inch LCD touchscreen display, research firm iSuppli said today.
The new number is $31 higher than an earlier computer model-generated estimate by the company. The head of iSuppli's teardowns blamed the under-estimate -- iSuppli missed the mark by 12% -- on unexpected complexity and pricier parts.
According to El Segundo, Calif.-based iSuppli, best known for its electronics teardowns, the $499 16GB iPad contains $251 in parts and $9 in manufacturing costs, for a total of $260. Last February, iSuppli conducted a "virtual teardown" using a computer-generated model created to peg the parts costs of unreleased hardware. At the time, iSuppli touted the accuracy of the model, saying that it had come within 1%-2% of later teardowns of the real products. The firm estimated the $499 iPad's virtual bill of materials (BOM) at $219 in parts and $10 to manufacture for a total of $229.
"There's more complexity in terms of the circuitry than we expected," said Andrew Rassweiler, director of iSuppli's teardown services, as he defended the earlier number. "The custom screen turned out to be more expensive, as did the battery."
In February, for instance, iSuppli assumed that Apple would slap together a pair of battery cells, not craft a custom-fit battery that could be easily replaced by a service technician. "That's a value-add right there," said Rassweiler. iSuppli's February BOM underestimated the cost of the battery by nearly 17%, and missed the touchscreen display total by almost 18%.
But the additional complexity of the iPad's circuitry was the biggest surprise, Rassweiler said. "We assumed there would be more integrated chips, but it's a first-generation product. It's new and you're trying to get the product out," he said.
One example: The iPad's touchscreen sports three control chips, not the one that iSuppli assumed in February. "Hindsight is 20-20, but it's a larger screen than the iPhone, and has a lot more sensor points. So there's a lot more upfront processing," Rassweiler said.
Over time, Apple will probably combine some of those chips, or integrate them into others. "Once the design has jelled, that's when Apple can design more integration," said Rassweiler.
The iPad's BOM-to-price ratio is in line with other Apple products. The least-expensive tablet's ratio is 52%, while the mid-priced $599 32GB iPad costs Apple $289 to make, and the top-end $699 64GB tablet runs Apple $348, for ratios of 48% and 50%, respectively.
Those numbers are in the same ballpark as other hardware. iSuppli's latest estimate for the iPod Touch, for example, pegged its BOM-to-price ratio at 47%, and the $999 MacBook's at 55%.
The upcoming 3G iPad set to ship later this month has an even lower ratio, and so likely a higher-profit for Apple. According to iSuppli, the 3G parts add only $24.50 to the BOM of the WiFi-only tablet. The $629 16GB WiFi+3G tablet, then, boasts a BOM-to-price ratio of 45%, better than any WiFi-only model.
Others have called the $130 extra that Apple's charging for the 3G tablet "ridiculous."
But Rassweiler saw a bigger picture than the iPad's parts list or its potential profit margin. The tablet, he argued, represents a design milestone.
"This is a paradigm shift away from the motherboard-centricity of the past," he said, talking about traditional computers. "In a notebook, everything is peripheral to the core value of the motherboard and the processor: the display, audio, the keyboard. But in Apple's design [of the iPad] the core value is the human interface."
To Rassweiler, everything in the iPad plays a supporting role to the touchscreen display. The 9.7-in. display is the iPad's priciest part, costing Apple an estimated $65, or 26% of the 16GB model's BOM. The second-most-expensive component is the touchscreen, priced at $30, or 12% of the total. Altogether, what iSuppli defined as the iPad's user interface-related parts tallied up to $109.50, or almost 44% of the BOM.
"The iPad turns the tables on traditional design," Rassweiler stressed. "Here, the electronics are peripheral to the look and feel."
iSuppli's estimate only accounts for hardware and manufacturing costs, and excludes design and software development costs, advertising and marketing, and royalties and licensing fees.
Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld . Follow Gregg on Twitter at @gkeizer , or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com .
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