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iPad 2 cost only a few dollars more to build than original iPad

Apple keeps cost nearly flat despite pricier display, battery, CPU

By , Network World
March 14, 2011 02:50 PM ET

Network World - An analysis of iPad 2 finds that Apple's total cost to produce the tablet is almost identical to that of the original iPad introduced a year ago.

Apple was able to keep costs down despite the fact that a number of iPad 2 components, including the display subsystem and battery, are considerably more expensive than those of the original tablet.

The analysis breaks down the components of the iPad 2, assigns a price tag for each, and estimates the actual manufacturing costs to come up with a total. There's only a $3 difference between the GSM- and CDMA-equipped 32GB iPad 2 models: $336.60 for the former, $333.25, according to IHS iSuppli.

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Most of that total is a tally of the bill of materials (BOM) -- all the chips, memory, the display components, and so on -- totaling $326.60 for the GSM model, and $323.25 for the CDMA model. iSuppli estimates the cost to manufacture each tablet is $10.

The most expensive components: display, at $127; memory (for the 32GB model) at $65.70; mechanical/electrical (enclosure, connectors, etc.), at $35; and the battery, at $25.

The total BOM for the iPad 2 is only just a few dollars more than the total for the original iPad, which iSuppli put at $320 when it the tablet was released in April 2010.

Among other things, Apple may have been able to leverage its supply chain relationships in light of the much higher anticipated unit sales of iPad 2. The original iPad sold about 15 million units in the nine months it was available in 2010. Estimates of iPad 2 sales typically start at about twice that and go up.

iSuppli's analysis shows that the components and vendors for iPad 2 are little changed from the original tablet. "The iPad 1 and iPad 2 use the same components and suppliers for the NAND flash, the multi-touch controllers and touch screen drivers, as well as the same core chip in the wireless section as was found in the iPhone 4," says Andrew Rassweiler, senior director and principal analyst and teardown services manager for IHS, in a statement. "Many of the other components -- including the apps processor and the Bluetooth/frequency/global positioning system/wireless local-area network chips -- have the same suppliers and are essentially new revisions of the chips found in the previous iPad and other iPhones."

Holding the iPad 2 cost flat is all the more remarkable considering that the new tablet's screen is quite a bit more expensive than the original's, by about one-third, according to iSuppli. The firm estimates the iPad 2 display/touch screen subsystem carries a price tag of $127, compared to the its estimate of $95 for the first iPad.

There are a number of reasons for the jump in costs, most traceable to the manufacturing challenges faced by suppliers. iSuppli: "Production yields, though they have been improving, have been very low throughout 2010, and drove prices to be much higher than initially expected. Furthermore, refinements in the touch screen specifications have driven the price point even higher for the iPad 2. Contributing factors to that cost increases include more expensive glue to improve the efficiency/performance in the bonding, thinner Gorilla cover glass and a more detailed inspection process requiring additional equipment for optical and panel examination."

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