By Aldo Panessidi
Not only is Apple under fire for the factory conditions and dust explosions that have occurred at their Chinese based manufacturing locations, but according UBM TechInsights, the Silicon Valley darling is looking at a lower profit margin on its upcoming iPad3.
The new iPad 3 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.
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Why the cost increase? It is in large part thanks to the new iPad’s Retina display. UBM notes that those changes in display cost Apple approximately $70 compared to the $49.50 iPad2 display. In addition to the Retina display, the iPad3’s 4G LTE chips are more than double in cost to the iPad2’s 3G chips ($21 per chip compared to $10) and a more expensive A5X processor chip that adds another $6 in cost.
One can only assume that Apple will look to periphery devices (wireless keyboards, protective cases, docking stations etc) to help close the gap in their gross profit margins for this newest iPad. But as these devices become more expensive to manufacturer, retail prices will inevitably rise. The same may be true for Apple’s line of iPhone 4S smartphone as well. These handsets will also have the more costly 4G LTE chips and increasingly more advanced displays.
As these prices rise, it may cause consumers to take stock of what they are shelling out hundreds of dollars for. Many times, it is more cost effective to reinvest in tablet accessories and less costly peripheral devices to achieve a comparable user experience. And, as in home renovations, sometimes a fresh coat of paint or a new protective case is just as effective in revitalizing the object in question.