Apple iPad profit model gets a 'teardown'

Like the iPhone, Apple stands to make a greater profit on the iPad when consumers choose models with more memory, according to an estimate released by iSuppli on Wednesday.

The $729 version of Apple's iPad is estimated to carry a bill of materials (BOM) and manufacturing cost of $287.15, making it the most profitable iPad model, according to iSuppli. The iPad is expected to go on sale as early as next month.

The firm did not have an iPad in hand when doing its analysis but based the virtual teardown on an in-house cost model that includes commodity components that are used across many devices.

Though the estimate does not account for non-hardware costs, as the price of different models increases, other costs will stay the same, according to Francis Sideco, an analyst at iSuppli. "Regardless of the configuration, software and licensing is going to stay the same. The only thing that's going to change are the hardware costs and primarily the memory," Sideco said in an interview.

That memory-based pricing scheme has become standard practice for Apple when pricing its iPhone and iPod, for example. For the iPad, the 32GB model will be the most profitable, costing only $29.50 more to produce than the 16GB versions, but the retail price gap is $100, iSuppli said. After the display, the NAND flash memory is expected to be the most expensive item. In the mid-range 3G model, the 32GB of NAND accounts for 21.4 percent of the total BOM, iSuppli said.

The touch-screen display is estimated to be $80 for all models, making it the most expensive component in the system, accounting for 29 percent of the BOM of the mid-range 3G model, according to Vinita Jakhanwal, an iSuppli analyst. The display uses In-Plane Switching (IPS) technology which allows a wider viewing angle than conventional LCDs.

The Apple A4 processor and DRAM are expected to carry a combined cost of $28.90, representing 10.5 percent of the mid-range 3G model's total BOM, making them the third most expensive line item in the mid-range iPad. The A4 alone is expected to carry a $17 cost. "iSuppli believes the processor integrates an ARM RISC architecture microprocessor and a graphics processing unit. The part likely was designed by low-power processor specialist PA Semi," iSuppli said. Apple acquired PA Semi in 2008.