iPad Definitely Marginal

Ars Technica reports: The dust has (mostly) settled, and iSuppli's analysis of the cost of the components that make up an Apple iPad reveals that the hardware itself only accounts for about half the retail price of $499. Taken together, iSuppli estimates that the cost of the hardware components totals $259.60. This fact will be used widely to support criticism that the iPad is "too expensive," but it leaves out numerous costs in launching a product like the iPad.

Unsurprisingly, the display contributed the most to the cost of the iPad. Along with the LCD panel, touch-sensitive overlay, glass covering, and necessary drive and touch electronics, that subsystem accounted for over 40 percent of the component costs. Flash memory was also a big contributor to the costs, and the higher priced iPad models maintained a component cost of roughly half the retail price as the storage capacity increased.

The costs estimates for the hardware to produce each model of iPad are as follows:

• iPad WiFi 16GB -- Retail price: $499, Hardware cost estimate: $259.60; Gross margin: 52%
• iPad WiFi 32GB -- Retail price: $599, Hardware cost estimate: $289.10; Gross margin: 48.3%
• iPad WiFi 64GB -- Retail price: $699, Hardware cost estimate: $348.10; Gross margin: 49.8%

These costs are higher than iSuppli's earlier estimates, but are quite similar to most Apple products, including the iPhone and iPod Touch. While these figures might lead one to conclude Apple is gouging customers on hardware, the truth isn't quite that simple. Apple's gross margins have historically been about 30 percent on most hardware. That's quite a bit higher than the thin margins that most hardware companies live by (and try to make up for in volume), but it's still far less than commodities like clothes or a bottle of wine in a restaurant. (Not to mention the component costs for something like a CD or DVD—about $1 maximum, including packaging.)

It's easy to conclude that another company could buy $260 worth of parts and make an iPad-like device and sell it for less, and that's probably true. But that doesn't account for things like research and development, design and engineering costs, or the effort that goes into iPhone OS (or any other software, for that matter). Whether the fit and finish Apple puts on its hardware are worth the extra cost or not is, of course, an entirely different matter.