Apple Watch teardown shows low component costs

Apple Watch teardown shows low component costs

01 MAY 2015

Apple’s Watch has a hardware cost that is just 24 per cent of the manufacturer’s suggested retail price (MSRP), meaning the vendor could stand to benefit significantly if sales are maintained over a longer period of time, figures from IHS Technology indicate.

Estimated hardware cost to MSRP ratios for other Apple products are in the 29 per cent to 38 per cent range, the company said.

IHS’ teardown of the $349 Apple Watch Sport 38mm shows a bill of materials of $81.20, rising to $83.70 when manufacturing expense is added.

“While retail prices always tend to decrease over time, the ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple’s bottom line if sales match the interest the Apple Watch has generated,” Kevin Keller, senior principal analyst for materials and cost benchmarking at IHS, said.

Of course, as the research firm noted, the figure does not include other costs such as logistics, amortised capital expenses, overhead, marketing, software, IP licensing, and other variables throughout the supply chain.

With Apple Watch being a new product for the company in a new category, research and development costs are likely to be significantly higher than for evolved products in its iPhone and iPad line.

Indeed, in Apple’s recent results call, Tim Cook warned about the validity of cost breakdowns, cautioning that “I’ve never seen one that is anywhere close to being accurate”.

And Luca Maestri, CFO of Apple, said that because of the newness of the device, “margins will be lower than the company average”, although presumably it will see the benefits in the longer term.

Reports also suggest that Apple was forced to scrap an early production run, after it was found that one manufacturer of its ‘taptic engine’ feedback module was encountering reliability issues. This led it to shift its orders to another of its vendors, although it took time to ramp supply.

IHS noted that while a number of the features of Apple Watch – such as pulse oximeter, force touch sensor, taptic engine, encapsulated modular printed circuit board and stacked-die integrated circuits – are “not revelatory”, it is “noteworthy that many features are appearing for the first time – in combination – in one device. It could be a bellwether for other future Apple products”.

The analysis does “not show any big surprises” among the main suppliers, using an Apple application processor, Toshiba Flash storage memory, and Micron DRAM. Broadcom, STMicro, Maxim, Analog Devices and NXP are used for connectivity and interface.

Apple Watch has a plastic OLED display from LG.


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