Deconstructing Apple's Tiny iPod Shuffle

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From Tiny to Minuscule

The device contains a tiny lithium ion battery that costs $1.20, and that Rassweiler describes as "the smallest we've ever seen." And for a company that doesn't ignore the tiniest of details, the most mundane of components are the most advanced available. The device's so-called passive components—capacitors and resistors—are unusually small. Known by their numeric label 01005, which in electronics shorthand describes their dimensions in thousandths of an inch, they're about the size of a grain of salt and cost fractions of a penny each. But they're half the size of what had previously been considered the smallest device of their type, those labeled 0201.

It's just one of many ways that Apple continues to differentiate its products from the rest of the pack. "Until recently we didn't see passive components quite this small," Rassweiler says. "Here you see them working on the cutting edge, even on the passives." They also help save space inside.

The components themselves are too small to give even a hint of who made them, but typical suppliers include such companies as AVX (AVX), Vishay Intertechnology (VSH), Kemet, and Rohm (6963.T), Rassweiler says.

There are other costs in addition to components for which a teardown can't account: The time and efforts of software engineers and designers, industrial designers, manufacturing, distribution, royalties paid on patents owned by other companies, and so on. When it last reported earnings on Jan. 21, Apple said its gross margin, a key indicator for profitability that takes into account costs to make all its products, was 34.7%. The company also said it expects a gross margin of 32.5% in the quarter ended Mar. 30, for which it will report results on Apr. 22.

Hesseldahl is a reporter for BusinessWeek.com.