Tim Cook: Component Cost Breakdowns on Apple Products Are Nowhere Close to Being Accurate
During today's Q2 2015 earnings call, Apple CEO Tim Cook noted that Apple Watch margins are lower than the company average, and on a followup question about those margins in the context of the Apple Watch Edition's high price, Cook commented on the inaccuracy of estimated cost breakdowns on Apple products.
"I haven't seen [them for Apple Watch], but generally there are cost breakdowns around our products that are much different than the reality. I've never seen one that is anywhere close to being accurate," Cook said. He went on to say that the Apple Watch's functionality is "absolutely incredible" with a lot of new features and innovative technology.
We haven't seen cost breakdowns on the components of the Apple Watch hinting at a possible base unit price that would reveal Apple's profit margin, but such component breakdowns are often shared by analysts following device teardowns. The iPhone 6 and 6 Plus, for example, were estimated to have a parts and labor cost of approximately $200, resulting in a 69 percent gross profit margin based on the device's $649 base selling price.
iPhone 5s component cost was estimated to begin at $199, and iPad Air component cost was estimated to begin at $274. All of these estimates, which come from IHS iSuppli, include only part costs, leaving out other expenses like research and development, software creation, marketing, and distribution, which may explain Cook's comments on inaccuracy.
According to Cook, it's "intuitive" that Apple Watch margins would be lower than the company average during the first quarter, as the first quarter of any new product is "a learning period." Cook declined to provide guidance beyond the current quarter, but Apple Watch profit margins could improve in the future as component costs drop as they do over time with any new technology.
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Top Rated Comments
When it comes to Samsung that is a reality. All they gotta do is tune into the Apple Keynotes and start copying ;)
First of, how do they even begin to measure this in the first place? Do they go by standard pricing for each component or are they doing some creative guess work in order to be smart about what Apple might pay for the various components? Because I can tell you for a fact that Apple do not pay regular prices for things like NAND, Sony camera modules etc that goes into their products as they are ordering hundreds of millions of these things..
No one is capable of knowing what kind of agreements that goes into making orders as huge as these, they are by far the largest in the industry.
You also have to take into account all the R&D that goes into each and every product, it's software, firmware, drivers etc.. Compared to the various other companies Apple is mostly doing all their work themselves in-terms for software development. Whereas Sony, Samsung etc.. Get their software delivered by Google, with most drivers and firmware as a part of Android. Apple is actually doing all this work themselves. They do of course have to do some optimisation and whatnot but it's not remotely close to amount of work Apple needs to put in as they are running their very own software, and they also like to have a hand in developing all kinds of drivers and firmwares for the various hardware as well.
They also need to drift the entire ecosystem with App Store etc.. Something Google is handling for the various other OEM's out there in-terms of Android.