Hacker News Reader

Comment by _djo_ | Hacker News Reader

It does not cost $175 to make, that's just the estimated bill of materials (BOM) cost. The actual cost to manufacture includes labour, design, shipping, testing, storage and dozens of other things.

Apple's gross margins on its devices, essentially the selling price less the manufacturing costs, is about 30-40% company-wide. That translates into an operating margin (which includes all costs) in the 20-30% range.

That's high for a consumer electronics company, but not as high as the $700 - $175 comparison makes it sound.

View on HN

The entry level, 16gb iPhone has a profit margin that is bigger than average, but not huge. The 64gb iPhone on the other hand.. it's like printing money. The markup doesn't even begin to compare to what the bigger storage actually cost to Apple. Apple makes a LOOOOT of money out of the customers who have bigger needs than average.

That's been Apple's strategy forever, people who want more have to pay a lot more than what it's really worth. I can remember the entry level iBook (during the PPC days) being sold with goddamn combo DVD reader/CD writer drives in a time where EVERY SINGLE PC LAPTOP SOLD, even the cheapest crap, had a DVD writer. Just to push people onto the higher profit margin.

I love Apple products but they really know how to milk their customers dry. Hacker News's audience wouldn't fall for that, but I can remember the markup on ram, when they still sold devices with 1 or 2gb of ram when the competition had 4gb on their cheapest stuff, with huge markups on the online apple store if you ordered a laptop with more ram. People here know how to put more ram in their computers and know not to order a macbook with "Apple's ram" (... a traditional thing that is going to die with the retina mbp and its soldered ram), but the average joe just got ripped off hardcore.

If you only look at their entry products, like the 16gb iPhone, the 21" iMac, the 11" MBA, yeah, Apple seems reasonable. Any other Apple product ? the margins on those things is something no one else could pull off without getting lynched.

I remember how ridiculous Apple's RAM prices used to be and you're right about their pricing strategy on iPhone storage representing a large markup. As I said, Apple's margins are high for a consumer electronics company, partly because they're able to employ those pricing tiers.

The point of my post wasn't to defend Apple, it was to show that comparing the selling price and bill of materials figures to highlight profit is simplistic and wrong. What actually matters is gross margin and operating margin, both of which are made public so there's no need to refer to the estimated BoM as the OP did. This applies to all companies, the all-too-common misunderstanding of BoM figures is a pet hate of mine.

Point taken, and I'm not really hating on Apple either so I don't really think of you as "defending" them, I'm just stating my thoughts about their strategy.

Apple completely changed the way I look at mobile devices. My first smartphone and tablet were the iPhone and iPad. I just wish they'd be more reasonable on some points, but they're obviously too successful to change their strategy unless a strong competitor shows up (and I hope that Google's strategy with the Nexus pays off).

I also am part of those who switched to Android but think that Apple had some reasonable arguments against Samsung that made them go wild against them. When you go as far as to make the charger look like an Apple charger you know there's something wrong going on. Samsung clearly tried to ride on the popularity of Apple products by making it look as much as possible as the iPhone and iPad, be it in the packaging, included accessories, look, early TouchWiz releases... there's a reason why TouchWiz on the S3 isn't like TouchWiz on the first Galaxy phones.. The customization on early Samsung android devices went too far toward Apple's direction. Even the "hardware" buttons, making the home button prominent and the other two android buttons more invisible in the design, and still keeping the home button as fully hardware on the S3 rather than going onscreen or capacitive like the other android OEMs.

Apple makes great products, but I feel like they're trying too much to milk us as much as they can.

Heh, I think we may both have misunderstood each other. My apologies.

I agree though, Apple's price discrimination may be understandable but as a customer it can really grind sometimes. When I went for an iPad I decided on the 16GB model for cost reasons and regretted it ever since, but the price jump to the 32GB was big enough that I shied away from it. It was annoying that the premium for a component that cost a fraction of what they charged created an uncomfortable dilemma for me that as a customer I shouldn't really have faced.

In all I'm excited about the level of competition, with MS's Surface bringing in another interesting angle, and I hope it continues for a long time. For one, though I have an iPad already I'm pretty sure I'm going to be picking up a Nexus 7 soon.

>If you only look at their entry products, like the 16gb iPhone, the 21" iMac, the 11" MBA, yeah, Apple seems reasonable. Any other Apple product ? the margins on those things is something no one else could pull off without getting lynched.

This is a pretty common case of price discrimination. http://en.wikipedia.org/wiki/Price_discrimination

Apple is certainly not the only company that does it. However they do commonly have a higher profit margin than their competitors.

> Apple's gross margins on its devices, essentially the selling price less the manufacturing costs, is about 30-40% company-wide. That translates into an operating margin (which includes all costs) in the 20-30% range.

Of course there are other expenses (those $10M Apple Stores don't build themselves), but you're incorrect about the operating margin. For Q4 2012 AAPL had an operating margin of 34% (gross margin was 40%).

The last figures I saw matched what I put in my post, though they may be older than I realised. Thanks for the correction.

ZTE just announced a phone with a retail price of 999 yuan ($160). If they can eek out a profit margin, makes you wonder what the real manufacturing cost is for the big players.

"ZTE U950 smartphone packs a 1.3GHz Tegra 3 chip, 1GB of RAM, 4GB of internal storage and a 2,000mAh battery beneath the 4.3-inch display."

http://www.engadget.com/2012/10/29/ztes-u950-tegra-3-phone/

Reply on news.ycombinator.com