Computers

Apple iPad Components Cost At Least $259


Apple's (AAPL) iPad tablet computer costs as little as $259.60 to build, according to analysis by the research firm iSuppli.

Materials for the iPad, which went on sale Apr. 3, include a touchscreen display that costs $95 and a $26.80 processor designed by Apple and manufactured by Samsung Electronics, according to El Segundo (Calif.)-based iSuppli.

Apple announced the iPad, which users can hold in their hands for reading and watching videos, on Jan. 27. ISuppli's analysis means that the components of the lowest-priced iPad, which includes 16 GB of memory, constitute 52% of its $499 retail price, on par with other Apple products including the iPhone 3GS.

A midpriced 32 GB version of the iPad that sells for $599 contains $289.10 worth of materials. A high-end 64 GB version, which retails for $699, contains components that cost $348.10, according to iSuppli.

Much of the iPad's component costs went toward making the device appealing to use, says iSuppli principal analyst Andrew Rassweiler, who supervised the "teardown" analysis of the product. More than 40% of the iPad's costs are devoted to powering its touchscreen display and other components of the computer's user interface—"what you see with your eyes and what you feel with your fingers," he says. The distinctive aluminum casing on the back of the device contributed about $10.50 to the cost of materials.

Apple spokeswoman Natalie Harrison declined to comment on iSuppli's findings.

More Silicon Chips Than Expected

Research firms conduct so-called teardown analysis of consumer electronics to determine component prices and vendors, and to estimate profit margins. The estimates don't include costs for intangible items such as software development, advertising, patent licensing, or shipping. In February, iSuppli had estimated that the least expensive iPad would carry a $219.35 cost of materials.

Once it took one apart, iSuppli found more silicon chips than it had expected powering interactions with the iPad's 9.7-inch screen. Apple uses three chips to control the iPad's touchscreen, for example. "Because of the sheer scale of this device, we're seeing more here than we expected to," says Rassweiler.

Over time, Apple may have leeway to combine many of the iPad's electronic components, or integrate them into the display, Rassweiler says. "We'll see a lot less silicon required to make them work," he says.

The most expensive component in the iPad is its touch-sensitive, custom-manufactured screen. South Korea-based LG Display (LPL), Samsung, and Japan's Epson supply the liquid-crystal display (LCD), according to iSuppli. Taiwan-based Wintek makes the glass overlay that detects the touch of a user's fingertips. The screen's special design makes it about twice as expensive as the screens used in comparably sized netbook computers, according to Rassweiler.

LG spokesman John Taylor did not return a call seeking comment. Wintek spokesman James Chen could not immediately be reached for comment. An Epson spokesman could not immediately be reached for comment. Chris Goodhart, a spokeswoman for Samsung, declined to comment.

Flash Memory Chips

Flash memory chips were also a significant portion of the iPad's costs. The chips, obtained from various suppliers including Samsung, account for $29.50 in costs on the 16 GB model, $59 on the 32 GB model, and $118 on the 64 GB model, according to Rassweiler.

Apple designed the main chip in the iPad, known as the A4. South Korean chipmaker Samsung Electronics built the chip for Apple and also supplied a memory chip attached to it for a combined cost of $26.80, a difference of $9.80 over the prior estimate of $17. "We believe that this chip was designed by P.A. Semi," Rassweiler says, referring to the chip design company Apple acquired in 2008 for $278 million.

Other chips in the iPad also proved more costly and more numerous than iSuppli had originally estimated. Broadcom (BRCM) supplied an $8.05 chip that handles Bluetooth and Wi-Fi wireless data connections, and two additional chips used to control the touchscreen, which cost a combined $3.70. Texas Instruments (TXN) supplied a $1.80 chip used to help control the iPad's touchscreen. Ciruss Logic (CRUS) supplied an audio chip that costs $1.20.

Broadcom spokesman Bill Blanning did not return messages seeking comment. Kimberly Morgan, a spokeswoman for Texas Instruments, declined to comment. Bill Schnell, a spokesman for Cirrus Logic, also declined to comment.

Arik_hesseldahl
Hesseldahl is a reporter for BusinessWeek.com
With Carlos Bergfeld in Silicon Valley

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