New iPad 3: Less Profit For Apple Compared to iPad 2?

Each time Apple releases a new product, research teams such as IHS iSuppli take it apart and strip it to its components to analyze costs and profits. And, according to the latest analysis, Apple seems to be making less profit with the new iPad than it did with the iPad 2, as the component parts for the new device are more expensive.

On the very day the new iPad went on sale in the U.S. and nine other countries, IHS iSuppli disassembled the device and concluded that its components are more expensive than those of the iPad 2, thus allowing less profit. The starting price for the new iPad is $499, the same price the iPad 2 retailed for at launch.

With its aggressive pricing for all three generations of the iPad, Apple makes it hard for competitors to offer such features within the same price range. However it makes less profit from each iPad than from each iPhone. Still, Apple is very profitable as a whole, earning $33 billion in net income on $81 billion in revenue over the last year.

According to the research firm, the new iPad with 32GB of RAM and a cellular modem, priced for $729, costs $364.35 to manufacture – 9 percent more than what it cost Apple to make iPad 2, or $335. In 2010, the corresponding version of the first-generation iPad cost $276 to make, which means slimmer profit margins with each iPad generation.

Two main reasons the new iPad is more expensive than the iPad 2 are the new high-resolution Retina display and the larger battery to support it.

The new display, with four times as many pixels as the iPad 2’s, is the most expensive part in the new iPad - estimated at $87, plus $40 for the touch-sensitive layer. Although the new battery has 70 percent more capacity, the new display consumes all additional power, leaving the same battery life as for the old model.

Moreover, the new cellular modem in some models is also a contributing factor to the cost increase, as the new iPad can use faster 4G LTE – Long Term Evolution – networks in the U.S. and Canada.

On the other hand, Apple makes more profits selling the higher-end models of the iPad due to the pricing of flash memory. According to the research firm, the $100 price increase between the 16GB and the 32GB versions is enough to cover Apple’s cost increase of $16.80 to provide the extra storage.

iSuppli did not include packaging or overhead costs such as design, marketing and software in determining the cost estimate.

(reported by Alexandra Burlacu, edited by Surojit Chatterjee)

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