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Apple Watch teardown suggests bigger profits for Apple

A dissection of the watch by researcher IHS shows that a relatively low cost for parts could add up to more money for Apple.

The cost of parts for the 38mm Apple Watch Sport could add up to an advantageous sum for Apple. James Martin/CNET

The Apple Watch seems to be a bargain for Apple to produce, at least at the low end of the line.

That's the suggestion from researcher IHS Technology, which took apart the 38mm version of the Apple Watch Sport to see what makes it tick.

IHS found that Apple may stand to make more of a profit from its lowest-priced smartwatch than from other recent products such as the iPhone 6, as judged by the price of the components that go into the devices.

The hardware in the 38mm Sport (plus manufacturing expenses) adds up to 24 percent of Apple's suggested retail price for the device, said IHS. Parts/expenses for other Apple gadgets dissected by the company have accounted for anywhere from 29 percent to 38 percent of retail price. All other things being equal then, the Sport with a 38mm screen could mean more money for Apple.

"The ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple's bottom line if sales match the interest the Apple Watch has generated," said IHS' Kevin Keller in a release. Keller is the company's senior principal analyst for materials and cost benchmarking services.

IHS' evisceration of the 38mm Apple Watch Sport revealed $81.20 worth of parts, with production cost for the gadget rising to $83.70 when a $2.50 manufacturing cost is figured in. The 38mm Apple Watch Sport has a suggested retail price of $349.

Apple offers other versions of its wearable. The 42mm Apple Watch Sport has a bigger screen than the device IHS looked at and costs $399 (both Sport versions have aluminum cases and come with plastic bands). The stainless-steel Apple Watch with a 38mm screen costs anywhere from $549 to $1,049, depending on the type of band, and the 42mm version adds $50 to the price. Finally, the 18K gold Apple Watch Edition costs $10,000.

IHS has apparently so far gutted only the 38mm Sport. We've asked about the cost versus price figures for the 42mm Sport and other versions of the watch and will update this story when we have more information.

IHS noted that the suggested retail price of a device usually drops over time, so the ratio of manufacturing cost to price also changes. The company also said its analysis doesn't include other manufacturing-cost variables such as logistics.

IHS has examined the guts of a number of Apple products over the years, including the various iPhone 5 and iPhone 4 models, different Macbook Air models, a selection of iPads and iPad Minis and different iPods. The iPhone 6 Plus, for example, had parts/manufacturing costs that added up to 29.4 percent of the device's suggested retail price. The figure for the iPhone 6 was 31 percent, and the figure for the iPhone 5S was 30.1 percent.

An earlier teardown of the Apple Watch, by iFixit, found that the gadget isn't upgradable, which means users who want to future-proof themselves and keep the same smartwatch will be out of luck.

Here's a look at the 38mm Sport's components, and their prices, as broken down by IHS:

IHS Technology
IHS Technology