Apple’s new iPod Shuffle comprised of just $22 worth of materials

When Apple released its third generation iPod Shuffle, the new design generated a considerable and surprising amount of controversy. Apple’s new Shuffle moved the navigation controls from the device itself onto Apple’s proprietary headphones. This somewhat radical design change led some to argue that Apple was sacrificing function for the sake of design. Despite other concerns such as the current lack of third party headphones for the device, Apple’s new iPod Shuffle has been selling extremely well, boosting Shuffle sales by over 50% just one week after it was first released. Even more impressive is a new report which suggests that the minuscule and relatively cheap new Shuffle might be a surprising source of profitability for Apple. iSuppli, whose bread and butter is buying shiny new gadgets and taking them apart piece by piece, recently did just that with Apple’s new iPod Shuffle. It found that the total cost of the component parts of the tiny MP3 player come out to around $21.77. Apple sells the Shuffle for $79, which means that it sells for almost 4x! the cost of the individual parts. Keep in mind that the $21.77 figure doesn’t take into account other expenses such as marketing, manufacturing, and engineering costs. Nevertheless, that’s still quite a markup. Looked at from another perspective, the new iPod Shuffle’s component parts account for 28% of its actual retail price, which is significantly lower than the component/retail price ratio of other iPod models. To achieve a similar ratio with the iPhone, the component parts would have to cost $56, which is a far cry from the $173 it actually costs. iSuppli’s findings, however, should always be taken with a grain of salt. As mentioned earlier, their tear down analysis doesn’t take into account certain factors,such as manufacturing and quality control testing, which would certainly add on some significant costs, Therefore, looking at component costs alone is clearly not a good basis for estimating profit margins. It does however give a little bit of insight into that analysis. We might not know Apple’s profit margins for the Shuffle, but if the parts alone cost just 28% of the retail price, it’s fair to assume that Apple is more than happy with the products early success.