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Handhelds The Almighty Buck Apple Hardware Technology

iPad Mini Costs $24 More To Make Than Kindle Fire HD 260

Posted by timothy from the price-theory-at-work dept.
sweetpea86 writes "... but retails for $130 more. Teardowns of the Apple iPad Mini and the Amazon Kindle Fire HD have revealed that the two devices cost almost the same amount to manufacture, despite the retail prices being significantly different. Andrew Rassweiler, senior principal analyst of teardown services for IHS iSuppli, explains that Apple is sticking to the premium brand strategy it has always used for its media tablet and smartphone products, whereas Amazon is banking on content."
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iPad Mini Costs $24 More To Make Than Kindle Fire HD More

iPad Mini Costs $24 More To Make Than Kindle Fire HD

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  • Few things (Score:5, Insightful)

    by SquarePixel ( 1851068 ) * on Tuesday November 06, 2012 @11:08AM (#41893605)

    First of all, Apple makes its own OS and applications while Amazon just uses Android. On top of that Amazon has always tried to keep their price down so they can sell more ebooks. Apple tries to make profit by selling their devices. These two things combined, I don't think the $100 price difference is that much. It's almost surprisingly low.

    • Why is this currently ranked -1? The poster is absolutely right. It costs big bucks to develop and maintain your own OS, so of course Android-based tablets are cheaper (yes, I know Kindle is not pure Android, but it's built on top of it). And Amazon is selling these things as loss leaders.

      • Re:Few things (Score:5, Informative)

        by jellomizer ( 103300 ) on Tuesday November 06, 2012 @11:41AM (#41894039)

        It was ranked at -1 because, most people don't understand how businesses run.

        Do you sell the razors or give away the razors and sell the blades.
        Do you sell a $500.00 Ink jet Printer with $10.00 cartridges. Or do you sell a $99.00 Ink Jet Printer and sell $30.00 cartridges.

        Why is it you get a $10.00 meal at KFC but for the same meal you need to pay $25.00 at say Applebees?

        There is more to the price then the cost of parts.

        • There is more to the price then the cost of parts.

          For electronics, it should be pretty much the cost of the parts. Look at the PC market.

          • Re:Few things (Score:4, Funny)

            by NatasRevol ( 731260 ) on Tuesday November 06, 2012 @12:00PM (#41894265) Journal

            Look at all the businesses fleeing the PC market.

            • The PC market is doing fine. And it's been absolutely great for customers. The PC has democratized computing and the world is a better place because of it.

              • You seriously aren't paying attention.

                Cheap computing may be good for customers, but it sure as hell isn't for the manufacturers.

          • Look at all the companies that went out of business that were white box makers.
            Because companies like Dell and HP were able to get their parts at bulk, they were able to make a profit selling PC's at the same Cost that it would take the smaller companies to sell at cost.

            Apple can sell the products for Less. But right now they don't have too, so they won't. The money they make with the new release will make up for all the replacements, and the price drops in a couple of years when the iWhatever Version x+1

        • Re: (Score:2, Funny)

          by gstoddart ( 321705 )

          Why is it you get a $10.00 meal at KFC but for the same meal you need to pay $25.00 at say Applebees?

          Because KFC is nasty and not fit for human consumption? ;-)

          The last two times I had KFC, after each I remember thinking "man, this stuff is gross, why do I eat it?".

          But, to quote So I Married an Axe Murdered [imdb.com] ... "he puts an addictive chemical in his chicken that makes ya crave it fortnightly, smartass! "

          • The last two times I had KFC, after each I remember thinking "man, this stuff is gross, why do I eat it?"

            I take it you've never seen "food" (I use that term loosely) being prepared in the back of an Applebees, Chilis or Olive Garden... :p

        • Do you go to the $5 barber or the $25 barber? After all the cost for the barber's equipment is rougtly the same. Is the $25 barber overcharging you or delivering you something the $5 barber could not deliver? The cost of parts doesn't determine the skill of the design.

          • Most of the people going to the $25 barber (that seems to be the minimum price now, but I'll use your pricing) seem to go there just so they can tell people they go to an expensive barber. This is especially true for men, as cutting men's hair is pretty simple. I know people who go to expensive barbers to get a buzz cut they could have got at home for free. I don't think your comparison of haircuts to tablets really makes a good point, because spending lots mo money on haircuts is exactly kind of think pe

    • Re: (Score:3, Insightful)

      by Haxagon ( 2454432 )

      No, it's most certainly not surprisingly low.
      Apple has piles of money; they're not recouping losses from development with the price, just wanting more profit.
      Amazon also has an app store of their own.
      It's not surprisingly low, it's surprising how high it is and how someone could possibly be open to the idea of higher profit margins on their devices.

      • Re:Few things (Score:5, Interesting)

        by garcia ( 6573 ) on Tuesday November 06, 2012 @11:27AM (#41893881)

        It's not surprisingly low, it's surprising how high it is and how someone could possibly be open to the idea of higher profit margins on their devices.

        I was in the market for a 7"-ish tablet. It was down to the FireHD, Nexus 7, or iPad Mini. While I was extremely disappointed in the price announced for the Mini, I ended up getting one anyway for a few reasons:

        1. We have iPhones and my kid (who will be the primary user of the device) is already accustomed to the interface

        2. The educational games/books we've downloaded for it are already there and ready to be synced.

        3. I liked the educational software available in the Apple app store over what I saw available for both the Kindle and the Nexus 7. Perhaps I didn't look hard enough--I don't know but it seemed much better from the Apple side.

        4. Everything the FireHD can do, the iPad can do possibly better depending on what review you read (the external speakers being one downside but I don't believe he'll be needing stereo speakers).

        5. I like the look, size, and weight of the device with the larger screen.

        6. As an Apple (iPhones, Mini, and MBP) and Amazon customer (I'm a Prime member and use them for video rentals, most online purchases, etc), I simply preferred the Apple device even though it was considerably more money.

        YMMV.

        • the external speakers being one downside but I don't believe he'll be needing stereo speakers

          Not quite sure if this is what you are referring to, but the iPad mini has stereo speakers (older iPads do not). Amazon had that wrong in an ad they have since pulled.

          6. As an Apple (iPhones, Mini, and MBP) and Amazon customer (I'm a Prime member and use them for video rentals, most online purchases, etc)

          I am also a Prime member - happily just as there is a Kindle app for the iPad, there's also an Amazon Prime Vide

        • Re:Few things (Score:5, Insightful)

          by Anonymous Coward on Tuesday November 06, 2012 @11:46AM (#41894105)

          1. We have iPhones and my kid (who will be the primary user of the device) is already accustomed to the interface

          2. The educational games/books we've downloaded for it are already there and ready to be synced.

          6. As an Apple (iPhones, Mini, and MBP) and Amazon customer (I'm a Prime member and use them for video rentals, most online purchases, etc), I simply preferred the Apple device even though it was considerably more money.

          YMMV.

          Apple's locked you into their ecosystem and you're paying double for the convenience. That was their plan.

          • Apple's locked you into their ecosystem and you're paying double for the convenience. That was their plan.

            One minor nitpick: You're not paying for convenience, you're paying to not be inconvenienced.
            "So, you don't want to be inconvenienced, eh? Well, then you buy our stuff, and you pay more... Or Else. That's a nice head of hair you have there, be terrible if we made you pull it all out..."

          • Re:Few things (Score:5, Insightful)

            by Dr. Evil ( 3501 ) on Tuesday November 06, 2012 @01:39PM (#41895753)

            Google's locked you into their services, your data is being mined and your eyes are being sold to advertisers. That was their plan.

        • Re: (Score:2)

          by MikeMo ( 521697 )
          The Mini speakers ARE stereo. That's why Amazon took down that comparison ad.

        • As has been pointed out, the iPad mini has stereo speakers. A comparison checklist between the Kindle Fire and the iPad mini was briefly posted by Amazon, and it incorrectly listed the iPad mini as not having stereo speakers, which is where most people seem to have gotten that idea (the list was later pulled offline after numerous other complaints regarding misleading statements and other inaccuracies in it).

          Apple hasn't exactly made a point of mentioning the fact that it has stereo, but teardowns of the de

        • Re: (Score:2)

          by drerwk ( 695572 )
          Are your iPhones retina? How are you and the younger feeling about the iPad Mini display? I'd like to get the mini for my kids, but am concerned that their having iPhones with retina will turn them off of the iPad mini display.

      • Re:Few things (Score:5, Insightful)

        by beelsebob ( 529313 ) on Tuesday November 06, 2012 @11:48AM (#41894133)

        Apple has piles of money; they're not recouping losses from development with the price, just wanting more profit.

        No shit... They're a company, that's what companies do.

        Amazon also has an app store of their own.

        Yes, the point being that Amazon, being a company, also want to make substantial profit. They just have a different model for how they do it.

        In Apple's case the model is "Provide lots of content for cheap, then people will want to buy that hardware that can use that content at a premium".
        In Amazon's case the model is "Provide a piece of hardware for cheap, then people will use that hardware to buy content for it from us at a premium".

        This difference leads to the Apple hardware being significantly more expensive. Big surprise.

        • Also, for some reason, AMZN's model seems to be better valued on Wall Street, with a PE of >3100, in spite of the fact that they basically have no profits for like a decade. But AAPL, with huge growth of profits only has a PE of 13.

          • Also, for some reason, AMZN's model seems to be better valued on Wall Street, with a PE of >3100, in spite of the fact that they basically have no profits for like a decade. But AAPL, with huge growth of profits only has a PE of 13.

            No doubt Apple executives everywhere (especially the millionaire ones) are so upset about that.

            • They should be.

              If AAPL was priced like a typical tech stock, with typical growth, they would have a PE of about 50. A stock price of about $2200. And a market cap of $3 trillion dollars.

              Yet, they're an above average tech growth company. >40% earnings growth for the last 5 years.

        • I'm not familiar with either either Apple or Amazon App Store, but I was of the impression that the prices were roughly equal?

          In which case, the Apple model is "Make a lot of profit from hardware AND content, because people will buy our stuff anyway."

        • Re: (Score:2, Insightful)

          by geekoid ( 135745 )

          What cheap content on Apple? I'ts the same and often cheaper on Amazonb.

          Apples case is: People want to be hip, cool and cutting edge while not actually having to learn anything. We market that and charge.
          To quote Smithers: "Well, it's a policy that ensures a healthy mix of the rich and the ignorant, sir. "

          Amazons case is: "Get everyone Apple doesn't get."

    • 4:3 and 16:9. Even the cheapo Chinese tabs have significant difference on pricing on those - screen size is bigger and possibly has to do with volume. 7.9" is really 8" - Apple just tries to let people 'compare' them with the Fire/Galaxy but it's really apples/oranges.

    • Did you say "surprising low"? What kind of markup (in percentage) do you think is "reasonable" and not "surprisingly low"? And perhaps you can also tell us what is "surprisingly high" just for comparison.

    • Indeed. In which case a better comparison of pricing policies is perhaps with Microsoft. At the end of the article is this...

      IHS iSuppli has also done a teardown of Microsoft's £399 Surface tablet, revealing that the device costs just $271 (£170) to build....

    • First of all, Apple makes its own OS and applications while Amazon just uses Android.

      The origin of the goods are not of interest here. Just the price versus the quality.
      If Apple is more expensive by making more expensive decisions, that's their choice. It doesn't help the consumer.

    • I wonder if Apple figured that the Mini would be going predominantly to people who:

      1) Own an iPhone but not an iPad
      2) Previous version iPad owners looking for a smaller device upgrade
      3) iDevice completists who want to own one or more of each

      Each of these groups will buy less content over time because they already have a lot of apps and other content on their other devices; the Mini simply becomes yet another consumption device and they will not be buying more content specifically for the mini, hence the mar

    • Apple makes money selling the device, and from each App, and from the OS, and from any content you download ....

      Amazon makes money only from the content ...and they can still sell it for less ...

    • Re:Few things (Score:4, Insightful)

      by samkass ( 174571 ) on Tuesday November 06, 2012 @01:27PM (#41895505) Homepage Journal

      And the obvious point: Apple is selling all they can make right now. Supply and demand would dictate Apple should be charging even MORE, but price is artificially low so people don't start associating the product with an even higher price later on.

  • Why is this said with any implication of surprise (Score:5, Insightful)

    by jeffmeden ( 135043 ) on Tuesday November 06, 2012 @11:11AM (#41893665) Homepage Journal

    The $35 in extra cost turns into $130 at the consumer level. That's actually pretty much right for a manufactured good. You see, when someone makes a product they typically want to charge MORE for it than it costs to produce. This difference is called Profit. The more it costs, the more you must charge. Plus, it's apple. Even if it cost less, they are selling you the device plus the brand. Or did you think Phil Shiller worked for free?

    • Re:Why is this said with any implication of surpri (Score:5, Informative)

      by vlm ( 69642 ) on Tuesday November 06, 2012 @11:25AM (#41893847)

      The $35 in extra cost turns into $130 at the consumer level. That's actually pretty much right for a manufactured good

      Oh, you were so close to being correct, and then missed.

      The reason its so close is middlemen. If it costs a farmer 10 cents more to grow an apple, that doesn't mean YOU pay the food store 10 cents more, it means the wholesaler gets 2*10 cents = 20 cents more, the distributor/franchise operator gets 2*20 cents = 40 cents more, the store needs to charge twice invoice on average to keep the lights on, etc, so you pay 2*40 cents = 80 cents more at the store.

      Its not quite so bad with market leading electronics, but its bad. I can totally see if a battery costs $4 more, the retail price after layers and layers of middlemen could very well increase $13.

      The price at a direct mfgr store goes up because the resellers demand it contractually in order to stock it, Walmart would never carry the kindle if amazon could undercut it every time, so the price, even online, reflects the maximum amount of middleman profiteering via any channel. Mandatory minimum pricing and all that. Yes apple.com probably COULD sell it for only $35 more, but walmart etc would freak out and sue them, so they have to sell it for $130 more.

      • If MMP were somehow not part of the equation, the MSRP would just be something ridiculous like $599 and then each outlet would offer a "great deal" to their own liking (this is what happens with goods that aren't as easy to MMP like an iPad) and the consumer would end up shelling out $329 or something close, depending on how discriminating (in the economic sense) they were. The profit WILL be had.

      • The investiment in stocks (of finished goods, parts, everything, at the manufaturer, distributor, retailer), the risk that some products won't sell, the loses on transportation, and event he amount of money the governent gets to keep; all increase when the price of the product increases.

    • Re: (Score:2)

      by AmiMoJo ( 196126 ) *

      The point is that Amazon doesn't need to make a huge profit on the Kindle Fire because they can then sell you content too.

      Apple wants to do both, the greedy, greedy bastards.

      • Amazon doesn't make any profits. At all. That's not really a good business model, unless you're a non-profit.

    • Re: (Score:2, Informative)

      by Jintsui ( 2759005 )
      Perhaps if people didnt kiss Apples ass and buy everything that has an Apple logo, regardless of price, their prices wouldnt be outrageously high to begin with..
      • You should not have been modded troll. While you could just leave the kissing part out of it. People buy their products at the current price at a high enough rate that they are making enough money to keep it at the current price. They may pre-emptively lower the price if they see another product from Samsung or whoever that may directly compete with their sales, but in general they set price based on what people actually buy. The problem is not that Apple sets the price where it does. It's that a bun

    • Not only that, but $24 in parts cost plus additional labor cost (the iPad mini looks significantly trickier to assemble than the Fire does), and it certainly doesn't appear out of line.

  • I own an iPad, an iPod, two Android devices and a Nexus 7 is on its way in the mail. I still haven't purchased anything from any app store.

    Furthermore I'm not sure what would compel me to do so: free games are good enough, productivity apps are free, and music, movies and books are still basically free as long as you have a desktop, laptop, or friends.

    • I own an iPad, an iPod, two Android devices and a Nexus 7 is on its way in the mail. I still haven't purchased anything from any app store.

      On the Android devices, do you use Google search? Google maps? Google Mail? Google Drive/Docs? Google+? If so, you're supporting Google's main business - advertising and consumer data-mining. I'm sure Google would be more than happy for you to buy an iPad provided you still used Google services - the whole Android/Chrome thing is their hedge against Microsoft or Apple trying to lock them out of their OSs.

      Apple clearly has aspirations in the ad-funded-service business but they are still mainly a hardware

  • Design Costs (Score:3)

    by lazarus ( 2879 ) on Tuesday November 06, 2012 @11:20AM (#41893781) Journal

    Interesting, but until you compare the design costs of each device, you can't make a statement about whether or not the price is a fair one. These things don't just spontaneously arise.

  • ...Amazon has a very low cost of ownership for Android, after all. Apple wrote the vast majority of iOS.

    • Apple wrote the vast majority of iOS.

      Wrote, past tense. It's not like it costs them any more for each tablet sold.

      • If long term maintenance of existing products were free, I would be a pauper.

      • Re: (Score:2)

        by v1 ( 525388 )

        Wrote, past tense. It's not like it costs them any more for each tablet sold.

        And that point is easily offset by the very large cost for development. It may have cost Apple half a million (or more) to write all the software on that device. So it's not reasonable to charge on either end of the cost spectrum, from free to very expensive. So they assign a cost to it (and use that figure to mark up the hardware) by guessing how many copies/licenses they can sell at $x. Just because software is cheap to copy

      • Apple wrote the vast majority of iOS.

        Wrote, past tense. It's not like it costs them any more for each tablet sold.

        iOS 2? 3? 4? 5? 6? The one you know they are working on now? I remember an iPhone running an OS that couldn't handle Retina graphics, tablet sized displays, Bluetooth stereo, cut and paste, Exchange support, voice control, AirPlay, third-party apps, wireless sync, background operations, persistent notifications, didn't have driving directions or their own map content, folders, Game Center, MMS, high definition video, HDR, panorama photo shooting, video calling, 4G/LTE, and a few other things.

        Each genera

  • 1. The OS and online infrastructure costs $0?
    2. Selling a product at a profit equates to "premium" now?

  • You know -- for the FreeBSD project providing all that free coding that helps pay for those gigantic bonuses?
  • Apple is a hardware company, Amazon is not. They both have different motives and you can clearly see it reflected in their products. With the Kindle and other tablets sold at a near-loss, vendors have an incentive to shove advertising in your face. Everyone will likely complain that the iPad mini is overpriced and shame on them for making a profit.

    The truth of the matter is that Amazon is just repeating the commodity PC bundleware strategy. I'd rather pay a little bit more to support a company that doesn't

  • And the point is? (Score:3)

    by Grayhand ( 2610049 ) on Tuesday November 06, 2012 @11:34AM (#41893947)
    If I was Apple I would have set the price at $250 and lived with little or no profit and counted on iTunes sales. The point is Apple has always taken the stance that they are a hardware maker not an OS or even a software and music retailer. Those are considered sidelines. It's one of the reasons their hardware has always cost more but they sell their OS dirt cheap. I don't know the profit margin on a Fire but say Apple is pulling 30% or 35%. It's high but not out of line with some products and no one ever wants to factor in development costs. Yes it's a downsized iPad but there's still tooling and design costs. Overall they are making probably 25% without advertising. Oops there's that cost and Apple loves to advertise. I have no idea the final cost once you add in distribution and advertising and all the other expenses. I'm sure they are easily making 15% or 20% pure profit. It's a health profit but that's what a company in their position should make, a healthy profit. The companies have to make money somewhere but everyone says they don't want to pay much for music, movies, games and software so where exactly do you build in profit? Everyone else is playing catch up so they have to sell near or at a loss but so long as Apple products are selling well they have no incentive to cut out the profit margin. Sure they are making a profit on every step but that's what companies do, make money. At least they are making a solid product. One of the reasons Microsoft got into so much trouble is they became dependent on a couple of products then started turning out crappy products and said so what? We have a monopoly in PC OSs and office software so what are you gonna do about it? Well over the last five or so years a lot of people switched to Apple. Apple's evil? Here's a revelation, corporations are evil! They exist to make money not to make you happy. They want to make their investors happy. As much as I would like to see Apple products cheaper I don't want to see them cut quality to do it. Little things like the metal instead of plastic cases on the pad devices. The iOS is elegant and fun to use once you get used to shoehorning your personal content onto them. I'd love to see them more open but it would come at a sacrifice of stability so I'm happy the way things are. In the end if you want a device with zero profit margin then buy Android. If you want iTunes then you're talking an Apple device and deal with them making a profit.

  • *No HD movies, less PPI, mono sound. Not to mention the handcuffs. No thanks.

    http://news.cnet.com/8301-1023_3-57541838-93/amazon-pits-kindle-fire-hd-vs-ipad-mini/ [cnet.com]

    • More PPI is better for reading, but at that screen size, the difference between the two devices is pretty much irrelevant for movies. And what handcuffs are we talking about? It may be difficult to migrate away from Apple devices but the same is true to some extent for other devices like Kindles or Android tablets. And good luck reading books from distributors other than Amazon on your Kindle; it still does not support DRM'ed ePub (and not free ePub either if I am not mistaken although you can convert th

  • It matters not. (Score:2, Insightful)

    by sootman ( 158191 )

    I can give $20 worth of ingredients to my neighbor (he's a chef) and the same to my kid, but you'd be a fool to think that you'll get two meals of comparable value from them.

  • Luxury Devices (Score:3, Interesting)

    by fldsofglry ( 2754803 ) on Tuesday November 06, 2012 @12:42PM (#41894853)
    This seems to come up a lot. Apple is overprice, apple is overpriced. Perhaps they are just the "luxury" devices of the computer world. I feel this applies to cars as well, but I don't see people posting that Lexus' or BMW's are overpriced. A Ford Focus gets me from point A to point B just as well as a Benz, but the perceived quality and status symbol of the Benz helps keep prices high. Hell, I had a Nissan that has gone 235,000 miles at a much lower price than "luxury" cars. So Apple charges more than other device retailers/manufacturers? Why is this surprising? So does BMW and Lexus compared to Fords and Chevy's.
  • Premium doesn't mean something is "Better" it just means it is more expensive! For instance, "Premium Beers", that dumb people flocked to in such numbers they forced the Local breweries out of business and made American beer a joke around the world! Same situation here! Apple has never been more than marginally "Better" than Windows or Linux, and you paid for that slightly better experience in both money and lack of choice, what you got was hat things like control P did the same thing in all the software fo
  • Product....Kindle...iPadMin... Surface [isuppli.com]
    Cost.......174.00...198.00.....284.00
    Price......199.00...329.00.....599.00
    Profit.....14.37%...66.16%.....110.9%
    So Microsoft is hoping that by embracing Apple's strategy (huge profit margins on hardware) and extending it (almost double Apple's margin, which is already four times Amazon's), it can extinguish the Kindle Fire? I know MS doesn't do business the way it used to [wikipedia.org], but leopards don't change their spots.

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