I really don't understand this at all. According to iSuppli[1], Apple pays $229.35 in parts and labor to make the low-end iPad. They develop their own operating system, buy incredible amounts of ads, and yet they still have massive profit margins selling iPads for $500.
Meanwhile, Motorola and Samsung and other manufacturers get a free operating system and get cellphone carriers to give them a bunch of money to sell the device with a data plan. Yet their devices are $600-$1000, they often have smaller screens, and are (probably) loaded up with crapware. I fail to see why anyone would ever buy something like this, and I fail to see why anyone thinks someone will buy one.
Even if no company has a supply chain as good as Apple's (which I have trouble believing, considering how many components are manufactured by Toshiba and Samsung, for instance) and they need to pay an additional 20% for parts, they could still make the same device, sell it for slightly less and still make plenty of money.
Wow, that makes it really interesting. The huge problem with GPS is height information. My GPS devices have commonly 10-15 m practical error in height on cities (urban canyon effect).
This could be very interesting for tunnel inertial navigation as makes the inertial problem a 2d issue from 3d.
But the most expensive parts (processor, lcd, batteries, ram, flash memory) are for the most part commodity items. I would imagine Apple has some negotiating power buying huge volumes, but getting them 50-75% cheaper than Samsung?
Apple paid $500M in cash to Toshiba for flash memory in 2009. They invested $3.9B this year in some unspecified manufacturer, reportedly buying them manufacturing equipment and tooling. I'm pretty sure that those cash payments will enable the manufacturers to cut prices because they in turn can pay cash to their suppliers. Without the up-front cash and volume that Apple provides, even Samsung itself probably can't give themselves the same price without losing money. And if they do that, my guess is that Apple might take their business elsewhere, and for Samsung the math should be pretty easy on that one.
Commodity items are not immune to mass production prices. Today Apple is the #1 flash memory user in the world thanks to the ipods,iphones and macbooks airs.
It is not only "negotiating power", it is as simple as making 10 million iPad processors make them more than 10 times less expensive than those that have not sold even a million. Having a semiconductors line(processor, LCDs...) are roughly the same fixed cost if you make 1 unit or a million.
Samsung is one of the few companies that could compete with Apple as the processor design is theirs, have great LCD and ram tech, but they have not a single product that compete with Apple in numbers.
I am pretty sur iSuppli's numbers are not accurate. Apple has the money to buy in quantity that Mortorola cannot match. I also think that Apple's COO has overseen the building of a world-class supply chain. Plus having a successful retail chain that can feature your product is a huge advantage. The iPod experience shoul show that price is not going to be an easy thing to beat Apple in for consumer electronics.
Actually, this is correct. In many electronics companies the divisions internally can operate as profit centers, wherein they are incentivized by making the largest profits for themselves. If Apple can offer more for flash to the Samsung flash division than the phone division at Samsung, then business goes to Apple.
The numbers check out.
Related readings
"Using transfer pricing in decision making - Nuts and Bolts of Business": http://bit.ly/f0xBb0
Exactly. In large asian corporations which have their hands in a lot of different industries and spaces, different divisions often act and negotiate independently. This is so that no one division can bring the whole company down and other companies can maintain a level of trust with that division as a supplier, regardless of whether another division might be competing with those companies.
Failure to respect these divisions is one reason Sony failed in the consumer electronics space against the iPod. It allowed the entertainment and media side of the company to impose ATRAC copy protection and other kinds of DRM on the consumer electronics division of the company, which resulted in a much less compelling (compared to the iPod and other music players which used less draconian DRM measures) network walkman line of products.
I doubt Samsung is that screwed up but I do know one company where outside vendors got a better price then one of their own divisions. The CPU is not the only component.
Though "designed" might give you the impression that they're materially different from the hummingbird based hardware that Samsung make for themselves and others when in reality the differences are slight and probably more like making a choice from a menu (e.g. selecting a different GPU) than stepping into the kitchen yourself.
If it was possible to get a good tablet (of any size) to consumers cheaper than Apple, someone would have. Maybe this project started out with your assumptions and ended up with (possibly unsellable) $800 device.
AFAIK, Apple's supply chain is not only legendary, but they'll commit huge amounts of capital to new hardware products in advance. This allows them to more or less own the output of a given supplier's factory, forcing other companies to pay spot prices for their follow-on products.
Not contradicting you at all, but those of us who have been Apple customers for decades now (cripes) have to smile wryly whenever Apple's supply chain is described as "legendary". Back in the bad old days they never could seem to get supply and demand to match up, so whenever they had a hit, they couldn't capitalize on it as well as they should have.
Everybody knows that Steve restored vision to Apple when he came back, and that Jonathan Ive revolutionized its design language, but fewer people seem to know how much of what makes Apple 2.0 great boils down to the incredibly stable and responsive delivery platform that Tim Cook has built.
You're right that they should stop trying to copy Apple, and instead try to make something better. To me, Android is only more open and flexible, but it's not better. It might be good enough, though, just like Windows was good enough and more "open" than MacOS.
But without the right product, no amount of marketing is going to get you any real volume. And without volume, no amount of supply-side management is going to get the great product margins.
But, iphones have been out for a while. Long enough for new factories to be set up, old factories to increase capacity, contracts to run out... Should be long enough for things to catch up. Why are iphone's best competitors still about the same price or more?
Logistics isn't just the factories. Buying power, relationships, knowledge, and engineer / material expertise are all factors. Having your own retail chain doesn't hurt either (so you don't have to agree to no cell contract = no WiFi nonsense). Motorola doesn't have the combo.
Since your comment boils down to "Android tablets are crap and should be priced accordingly" it's probably a good thing that they're setting expectations with a high price.
I don't see any part of your comment that doesn't apply to Android phones, and they clearly started at the high-end before they working their way down the value chain. This strategy worked well enough to save Motorola, I don't see why they should change now before your bold prediction of zero sales of their tablet offering is proved one way or the other.
The iPad with comparable specs (3G, 32 gigs) is $729, has a smaller screen, and lacks cameras, not to mention barometer. Comparing to the 16gig iPad with only wifi isn't exactly fair. Apple happens to make a lower-end version, that's all, it's not inherently cheaper.
Comments
I really don't understand this at all. According to iSuppli[1], Apple pays $229.35 in parts and labor to make the low-end iPad. They develop their own operating system, buy incredible amounts of ads, and yet they still have massive profit margins selling iPads for $500.
Meanwhile, Motorola and Samsung and other manufacturers get a free operating system and get cellphone carriers to give them a bunch of money to sell the device with a data plan. Yet their devices are $600-$1000, they often have smaller screens, and are (probably) loaded up with crapware. I fail to see why anyone would ever buy something like this, and I fail to see why anyone thinks someone will buy one.
Even if no company has a supply chain as good as Apple's (which I have trouble believing, considering how many components are manufactured by Toshiba and Samsung, for instance) and they need to pay an additional 20% for parts, they could still make the same device, sell it for slightly less and still make plenty of money.
[1] http://www.isuppli.com/Teardowns/News/Pages/Mid-RangeiPadtoG...
However, the Xoom has beefier (i.e. costlier) hardware than the iPad:
But how much will these hardware improvements affect Joe Consumer's purchasing decision when he wants read Facebook and play Angry Birds?"*and a freakin' barometer?!"
Wow, that makes it really interesting. The huge problem with GPS is height information. My GPS devices have commonly 10-15 m practical error in height on cities (urban canyon effect).
This could be very interesting for tunnel inertial navigation as makes the inertial problem a 2d issue from 3d.
"Warning, there's a storm coming. You should probably put your $800 tablet in a bag so it doesn't get wet."
You really don't think the iPad 2, which is right around the corner, will have comparable hardware and still cost about what it does today?
Why not compare to the iPad that has comparable hardware today? There's a 32 gig iPad with 3G on the Apple store right now for $729.
I bet the beefier processor and RAM are just to make android run better.
I have a T-Mobile G2, a rather recent and beefy phone and I mostly don't like using it. My iPad and older iPod Touch are much more pleasant to use.
Manufacturing cost is ALL about the volume. You can make a device cost half as much if you buy 10x the volume, and half as much again for 100x
But the most expensive parts (processor, lcd, batteries, ram, flash memory) are for the most part commodity items. I would imagine Apple has some negotiating power buying huge volumes, but getting them 50-75% cheaper than Samsung?
And remember, Samsung makes the flash memory for Apple! Surely they give themselves the same price (or better) that they give Apple.
(They also make LCDs, so they probably get a good price on those too.)
Apple paid $500M in cash to Toshiba for flash memory in 2009. They invested $3.9B this year in some unspecified manufacturer, reportedly buying them manufacturing equipment and tooling. I'm pretty sure that those cash payments will enable the manufacturers to cut prices because they in turn can pay cash to their suppliers. Without the up-front cash and volume that Apple provides, even Samsung itself probably can't give themselves the same price without losing money. And if they do that, my guess is that Apple might take their business elsewhere, and for Samsung the math should be pretty easy on that one.
Commodity items are not immune to mass production prices. Today Apple is the #1 flash memory user in the world thanks to the ipods,iphones and macbooks airs.
It is not only "negotiating power", it is as simple as making 10 million iPad processors make them more than 10 times less expensive than those that have not sold even a million. Having a semiconductors line(processor, LCDs...) are roughly the same fixed cost if you make 1 unit or a million.
Samsung is one of the few companies that could compete with Apple as the processor design is theirs, have great LCD and ram tech, but they have not a single product that compete with Apple in numbers.
I am pretty sur iSuppli's numbers are not accurate. Apple has the money to buy in quantity that Mortorola cannot match. I also think that Apple's COO has overseen the building of a world-class supply chain. Plus having a successful retail chain that can feature your product is a huge advantage. The iPod experience shoul show that price is not going to be an easy thing to beat Apple in for consumer electronics.
So apple can buy the CPU for it's iPad from Samsung for less than Samsung can????
Actually, this is correct. In many electronics companies the divisions internally can operate as profit centers, wherein they are incentivized by making the largest profits for themselves. If Apple can offer more for flash to the Samsung flash division than the phone division at Samsung, then business goes to Apple.
The numbers check out.
Related readings
"Using transfer pricing in decision making - Nuts and Bolts of Business": http://bit.ly/f0xBb0
Managerial Accounting Transfer Pricing Lecture Notes, UIC: http://bit.ly/fhaoUM
Exactly. In large asian corporations which have their hands in a lot of different industries and spaces, different divisions often act and negotiate independently. This is so that no one division can bring the whole company down and other companies can maintain a level of trust with that division as a supplier, regardless of whether another division might be competing with those companies.
Failure to respect these divisions is one reason Sony failed in the consumer electronics space against the iPod. It allowed the entertainment and media side of the company to impose ATRAC copy protection and other kinds of DRM on the consumer electronics division of the company, which resulted in a much less compelling (compared to the iPod and other music players which used less draconian DRM measures) network walkman line of products.
I doubt Samsung is that screwed up but I do know one company where outside vendors got a better price then one of their own divisions. The CPU is not the only component.
I know that this wasn't your exact point, but apple does their own CPU's, IIRC. The A4 chips are the ARM arch. and are done in-house.
They're designed in-house, but Samsung manufactures them.
Though "designed" might give you the impression that they're materially different from the hummingbird based hardware that Samsung make for themselves and others when in reality the differences are slight and probably more like making a choice from a menu (e.g. selecting a different GPU) than stepping into the kitchen yourself.
Must be more to it than that.
If it was possible to get a good tablet (of any size) to consumers cheaper than Apple, someone would have. Maybe this project started out with your assumptions and ended up with (possibly unsellable) $800 device.
AFAIK, Apple's supply chain is not only legendary, but they'll commit huge amounts of capital to new hardware products in advance. This allows them to more or less own the output of a given supplier's factory, forcing other companies to pay spot prices for their follow-on products.
Not contradicting you at all, but those of us who have been Apple customers for decades now (cripes) have to smile wryly whenever Apple's supply chain is described as "legendary". Back in the bad old days they never could seem to get supply and demand to match up, so whenever they had a hit, they couldn't capitalize on it as well as they should have.
Everybody knows that Steve restored vision to Apple when he came back, and that Jonathan Ive revolutionized its design language, but fewer people seem to know how much of what makes Apple 2.0 great boils down to the incredibly stable and responsive delivery platform that Tim Cook has built.
Instead of trying to copy Apple's products, their competitors should really be looking at how to replicate their marketing and supply-side management.
You're right that they should stop trying to copy Apple, and instead try to make something better. To me, Android is only more open and flexible, but it's not better. It might be good enough, though, just like Windows was good enough and more "open" than MacOS.
But without the right product, no amount of marketing is going to get you any real volume. And without volume, no amount of supply-side management is going to get the great product margins.
I'm sure stuff like that play a part.
But, iphones have been out for a while. Long enough for new factories to be set up, old factories to increase capacity, contracts to run out... Should be long enough for things to catch up. Why are iphone's best competitors still about the same price or more?
Logistics isn't just the factories. Buying power, relationships, knowledge, and engineer / material expertise are all factors. Having your own retail chain doesn't hurt either (so you don't have to agree to no cell contract = no WiFi nonsense). Motorola doesn't have the combo.
I don't think they are, I got a G2 phone for free on contract from t-mobile a few weeks ago, and the Droid X is $20 on Amazon.
I would imagine the production costs are similar, or lower, for Apple though and that they are just operatig with a much higher margin.
Since your comment boils down to "Android tablets are crap and should be priced accordingly" it's probably a good thing that they're setting expectations with a high price.
I don't see any part of your comment that doesn't apply to Android phones, and they clearly started at the high-end before they working their way down the value chain. This strategy worked well enough to save Motorola, I don't see why they should change now before your bold prediction of zero sales of their tablet offering is proved one way or the other.
The iPad with comparable specs (3G, 32 gigs) is $729, has a smaller screen, and lacks cameras, not to mention barometer. Comparing to the 16gig iPad with only wifi isn't exactly fair. Apple happens to make a lower-end version, that's all, it's not inherently cheaper.