Apple's Cheap-to-Build nano

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ISuppli discovered one unexpected supplier in its latest device teardown: Micron Technology (MU) provided the flash memory chips. That doesn't mean, however, that Apple has ditched its usual suppliers of flash memory, including Toshiba (TOSBF.PK), Hynix Semiconductor, and Samsung. "Micron is still a relatively small player as a flash memory supplier," Crotty says. "What we don't know is how much of Apple's flash supply is coming from Micron. If we tore down 10 more nanos, I suspect you'd see more occurrences of the usual suppliers." Indeed, another teardown analysis of the new nanos, this one by the consultancy Portelligent, found that the flash memory was supplied by Intel (INTC), Micron's partner in a new flash memory joint venture (BusinessWeek, 11/22/05).

Tangible and Intangible Costs

One chip supplier retained its position, and it was a big one: Samsung is still providing the main video-audio processing chip inside the nano. Samsung began supplying the chips in the second-generation models introduced a year ago, having won that slot from original supplier PortalPlayer, now a unit of NVIDIA (NVDA). The chip, which costs $8.60, is the same one used in the iPod classic, the hard drive-based player now in its sixth iteration in as many years, Crotty says.

Another video-related chip in the nano, this one an 85¢ part that drives the display and is similar to the one found in the iPhone (BusinessWeek, 7/2/07), comes from Intersil (ISIL). And Wolfson Microelectronics has retained its spot as a nano supplier with a 90¢ audio chip.

Analyst Shaw Wu of American Technology Research cautions that there are other less-tangible costs to consider in guessing the overall cost of the nano. Among them are reserves to cover warranties on defective units. "When you look at all these other costs, which you can't see from a teardown, then you begin to see why Apple's gross margin tends to be in the 30%-to-35% range historically."

That said, the iPod nano's slimmer component costs should at least help maintain the impressive girth of Apple's bottom line.

Hesseldahl is a reporter for BusinessWeek.com.