New Apple Watch Has Lowest Ratio of Hardware Costs to Retail Price | Hacker News Reader

New Apple Watch Has Lowest Ratio of Hardware Costs to Retail Price

businesswire.com

53 pointsjerryhuang10040 comments

Note that this data is all just made up. The components listed are probably close to right (though I don't see anything about the haptic device--could be I overlooked it) but the cost for each is just a random guess. I'm guessing they also well undershoot the assembly cost, given the extreme care Apple puts into its manufacturing process.

And even if all the per-unit costs are correct, the fact that they leave out R&D and logistics costs is very misleading, especially given that this is not just a new revision of a well-understood product like a new Mac or iPhone. This is a new product altogether, and that overhead is significantly higher. So in the end the number is misleading and ultimately pointless, except to Apple's cost accountants.

I wouldn't call them 'random' guesses as they seem to be based on actual information to some degree. I also wouldn't call the end number pointless, it just doesn't mean what people who only read the headline might assume it means. I believe the article does a pretty good job explaining the caveats about other costs which are not taken into account. And the numbers are still useful for comparing against other product launches by apple. R&D for products is generally left out of the production cost, as it is a fixed price regardless of the number of units they produce, and therefore has no unit price, and is simply recouped over time (hopefully).

Over all its an interesting article I think, and while reading it I felt they were doing adequate cautioning of the reader to not go 'OMG Apple is gauging us even more' which the number really has no relevance to as you point out, however it does not mean the number is misleading or pointless.

The article is only concerned with unit costs, not overall cost with various amortizations built in.

Is that a meaningful analysis?

No.

>And even if all the per-unit costs are correct, the fact that they leave out R&D and logistics costs is very misleading,

That would mean Apple has a small profit margin out of the total price of the product. I guess you don't read their financial statements. Apple is ALL about high profit margins.

At this point, for almost every Apple product you purchase, a large chunk of your money is never going to be used for any kind of R&D, logistics, or even used to compensate their brilliant designers. It simply ends up in a pile of cash.

Ya, I can't imagine they can actually assemble the watch for $2.50/unit.

"but the cost for each is just a random guess"

Component prices are not a secret, and even for things like the Apple processor they can be estimated with high confidence.

R&D also costs a few pennies...

Nobody is suggesting that.

Errrr... the person you wrote a reply to suggested it...

I misread his post and thought he was being sarcastic.

And yet, on the earnings call Tim Cook specifically said the Watch doesn't have a profit margin as high as other products.. yet.

That's not inconsistent with this analysis. As the article states, there are several factors, many of which would tend to be higher for a first generation product than a latter generation product (i.e. setup costs), that the bill of parts doesn't take into account.

The setup / R&D costs for manufacturing alone must have been enormous. Greg Koenig wrote a great piece about the manufacturing process[1]. It's a really interesting read, even if you're not a big fan of Apple products.

1: http://atomicdelights.com/blog/a-glimpse-at-how-the-apple-wa...

There could also be a very high internal defect rate which would significantly impact the net cost per unit.

They could also be expecting a high external defect rate, and be factoring, say, 10% into the sale price to defray warranty costs.

It's also the first of a new product line, so it likely also has to cover some of the costs of creating and entirely new division inside of Apple, from line support up to executives. NOT just the R & D costs.

Didn't he also say that he had never seen a third-party cost estimate that came even remotely close to being accurate?

<sarcasm>Greedy bastards!</sarcasm>

I always find it interesting to note that nobody ever acuses Apple of being greedy. The typical punching bag on the "greedy bastards" bandwagon are the oil companies. Interestingly enough they operate at gross profit in the order of 7% while Apple is running somewhere around 40%.

Just google "apple profit margin" for that data. Here's a Forbes article on oil companies, including the revelation that the government makes far more money per gallon than the oil companies themselves. Data is a bitch.

http://www.forbes.com/2011/05/10/oil-company-earnings.html

>At the gas tank integrated oil companies make about 7 cents per gallon

This has to be the figure for what the owner of the gas station makes, which in some instances is the oil company itself, but in many instances is a franchisee. Some states actually have price controls on gas to protect small "mom and pop" stations from "integrated" competitors(!) So, Exxon, et al. are making a hell of a lot more than $.07 per gallon of unleaded gas, not to mention the fact that gasoline is just one product that comes out of a barrel of oil.

I think people do see Apple as greedy, but even more people perceive thier products as non-commodity, luxury goods and think Apple is justified. A lot of people also identify with the Apple brand on a personal level. I don't think anyone thinks of themselves as an Exxon or BP person. Millions of people think of themselves as "Apple people."

No, it's about 8%

http://cdn.exxonmobil.com/~/media/global/Reports/Other%20Rep...

What's Basecamp's profit margin? Obviously they're private, but a public software company like Facebook is operating north of 80% (and a quick quick of Twitter and Google showed 60%+)

https://ycharts.com/companies/FB/gross_profit_margin

Gasoline for your car is a life necessity for many people.

Apple hardware is not.

This is a non sequitur. Food is also a life necessity for many people. Should farmers give away their produce?

If farmers were billionaires and had a cartel to artificially manipulate prices (and it were widely known, just in case they already do that), I imagine we'd hear similar complaints.

No only are there billionaire farmers, but their 'price-fixing cartel' goes so far as to pay farmers to not farm!

There are billion dollar agricultural corporations. I do not think there is a statistically significant population of billionaire family farms. Probably not even in the hundreds or tens of millions $ level, for that matter.

There are lots of family farms worth more than $10 million dollars. An average Saskatchewan farm has about $1.5 million dollars worth of land and a similar amount in equipment; farms 3X in size are not uncommon. Typically a $3Million dollar farm is run by a farmer by himself; a $10Million dollar farm would either have a single hired hand or more typically be a partnership between two family members.

Of course, the farmer himself is not worth $10M, large mortgages and operating loans are usually required.

>Of course, the farmer himself is not worth $10M, large mortgages and operating loans are usually required.

While probably not clear, this was my point. I know in U.S. for instance, policy makers used to argue that repealing the estate/inheritance ("death ") tax would help keep family farms in their respective families. In actual fact, it is very hard to find lots of individual farmers in the U.S. w estate tax exposure.

In canada there is a government run dairy cartel. It is very similar to the taxi medallions, farmers must purchase the right to produce dairy products. "Quota" for a dairy cow is worth 200k. 2 liters of milk is about $5 at the grocery store.

There is also a maple syrup cartel in Quebec which has been in the news recently.

Apple is _always_ accused of being greedy. Have you never heard of the "Apple Tax"?

$2.50 to assemble and test?

That works out to it taking about an hour to assemble and test, sounds reasonable to me.

At least based off the wage from 2012, allowing for an over 10% increase.

"At that salary, the wage ranges between $1.50 and $2.20 an hour, based on the exchange rate of 6.3 renminbi to the dollar." http://economix.blogs.nytimes.com/2012/02/24/the-ieconomy-ho...

That's a sad reminder of the level of labor exploitation that goes into luxury products and profit margins.

Is it exploitation though? If that's a prevailing wage in the area, it's not exploitation. It's just lower than they'd pay elsewhere. (if they are making them work for less or in unreasonable conditions, then yes, it's exploitation, but not because it's cheaper than US labor)

Apple usually has a 1:3 cost to retail price ratio (based on mobile devices). Maybe they need the headroom for additional sensors (to maintain the current price).

This is typical of fashion items.

Highest* ratio

No I think they mean lowest. They're saying the actual cost of the hardware (numerator) is low relative to the purchase price (denominator).

Hardly surprising for what is essentially a piece of jewelry. The cost inflation for the gold piece especially has nothing to do with the cost of the most expensive material (the gold itself).

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