A voyage inside the iPod Shuffle

An analyst dissects a Shuffle, details what she finds and takes a guess about the profit Apple's making on the device. Photos: The littlest iPod

A look under the hood of Apple Computer's iPod Shuffle shows the company is making music with two chips.

IDC analyst IdaRose Sylvester recently dissected a 512MB iPod Shuffle, purchased at retail, to determine what the tiny music player is made of. Her report, published earlier this month, reveals that Apple used two main chips spread over two separate circuit boards to foster the compact design of the music player, which was introduced in January.

The Shuffle Sylvester dismantled was based around an MP3 decoder chip from SigmaTel and a flash memory chip from Samsung--which means the device uses many fewer chips than hard-drive-based iPods, she wrote.

The MP3 decoder, mounted to one board, takes charge of a multitude of functions. Its handles music, including the playing of MP3, AAC and Audible format files. It harbors a USB 2.0 converter, SDRAM for buffering data and a headphone driver.

The chip is capable of handling Windows Media music file decoding and voice recording, and could send images to an LCD screen and work with an FM tuner, she wrote. Those features go unused in the Shuffle, though.

The Shuffle's Samsung flash memory chip is mated to a separate circuit board. The two boards are sandwiched together at the top of the Shuffle, leaving room for its battery below.

The Shuffle's lithium-ion battery takes up the bottom half of the device; it sits between the boards and the player's USB (Universal Serial Bus) connector. Sylvester surmises that because of the Shuffle's design, it may not be possible for the battery to be replaced by a consumer, if at all.

As with any electronic device, Apple had to make some trade-offs. The Shuffle's twin-board setup, integrated MP3 chip, built-in USB connector and the circuitry required to support recharging its battery via USB amount to a fairly complex design.

However, she concluded that Apple seems to be making a decent profit on the Shuffle.

Sylvester believes it costs Apple about $59 for the materials to build the 512MB device. The most expensive component in the Shuffle is its flash memory chip, which right now costs about $31, Sylvester wrote.

Thus Apple appears to have a "margin" of about 40 percent on the 512MB player, she wrote. Sylvester estimated that Apple's margin on the 1GB Shuffle is slightly smaller, about 35 percent. However, the report did not mention costs beyond the components, such as marketing, packaging, labor and other overhead. Also, while Apple sells iPods directly, it would not receive the full retail price of those sold through other stores.

Over time, the memory chip's price should decline, giving Apple even higher margins.

Apple could not immediately be reached for comment.

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