How Much Should an IPod Shuffle Cost?

[jamotto]

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Martyn Williams, IDG News Service

Analysts at IDC recently took apart an IPod Shuffle and come up with an estimate of how much the diminutive music player costs Apple Computer to make. They found that Apple makes a healthy 35 percent to 40 percent profit on each player sold, and stands to make even more from ITunes music purchases and expected drops in flash memory pricing.

The IPod Shuffle's flash memory, which was supplied by South Korea (news - web sites)'s Samsung Electronics in the model examined by IDC, is estimated to be the most expensive component used in the player by far, says IdaRose Sylvester, a senior semiconductor research analyst at IDC. (IDC is owned by International Data Group, the parent of IDG News Service and PC World.)

She estimates the 512MB of flash in the cheaper of Apple's two IPod Shuffle models costs the company around $37.50 for each player. That's about two thirds of the estimated total $59 that Apple spends on materials needed to make each 512MB IPod Shuffle. The product retails for $99 giving the company a profit of about $40, or roughly 40 percent.

"Apple is making very, very good margins on the Shuffle," Sylvester says. "We based our cost analysis on fourth quarter production prices, which would have been when they sourced [the components]. At some point they'll switch to cheaper flash and the margins will improve."

IDC estimates the average price of the same flash memory will slip to $31.25 during the current quarter, cutting the materials bill further and pushing Apple's margin on the 512MB player to around 46 percent, assuming there are no major changes in the price of other materials.

"Apple's margin can only improve," Sylvester says. "It's certainly not a loss leader."

Any discussion of Apple's profits from the IPod Shuffle must also include the ITunes Music Store, which is an integrated part of the company's business model. Like game console makers, Apple expects hardware sales to drive content sales, in this case music files. However, unlike some consoles Apple is making money on the hardware it sells and isn't so reliant on these later content purchases.

The second most expensive single component is judged by IDC to be the digital music decoder chip, which in the IPod Shuffle is the STMP3550 chip from SigmaTel. That marks a change from the hard drive-based IPods which use a chip from Portal Player.

The SigmaTel chip supports MP3 and Windows Media Audio files, although Apple has programmed it to play the AAC and Audible music formats, says Sylvester. The chip also includes a digital-to-analog converter, a controller for the USB2.0 interface, SDRAM (synchronous dynamic RAM) memory for buffering, and the headphone driver amplifier. Other functions present in the chip that aren't used in the Shuffle include an analog-to-digital convertor for voice recording, a driver for an LCD, and an FM tuner.

While these unused components are present in the chip, it doesn't necessarily mean Apple will use them at any time in the future, says Sylvester.

"If it had a screen, it would no longer be a Shuffle," she says. "Apple is getting a lot of marketing mileage out of clever slogans about shuffling."

Speaking at the recent Macworld Expo (news - web sites) in San Francisco, Apple's vice president of hardware marketing, Greg Joswiak, says Apple had experimented with a screen on the IPod Shuffle but that it hadn't been able to come up with a navigation system that it liked.

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[Guest]

46% is actually quite low, because if it is $99 retail, then the actual price to retailers is close to 50% of that, therefore retailers pay maybe $50, and then the markup takes it to $99.

So the profit for Apple directly is quite low, unless they are selling it direct to customers for $99 themselves.

I would say, since it costs apple $56, that for Apple this is indeed a loss leader, in order to make a profit via the music store.

Just as printer companies sell their printers at a small loss and make all of thier profit via the ink cartridges.

Me, I have an Ipaq with built in MP3 player, and payed a little more, but I get a WHOLE lot more, so an Ipod or whatever they are called is useless to me.....

[jamotto]

yea, the article didn't say how much they sold the unit to retailers for. The retailers might not markup the unit at all.

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Me, I have an Ipaq with built in MP3 player, and payed a little more, but I get a WHOLE lot more, so an Ipod or whatever they are called is useless to me.....

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How old is that Ipag, or more importantly how old are the Lithium Ion batteries. I have heard that Lithium Ion batteries last only 2-3 years from the date of manufacture, not the date from first use. So if it had been on the shelf for a year then you would only have 1-2 years of life in those batteries.

[Soback]

Yeah, my Ipaq batteries started giving out little by little, now they are completly shot, it only works off of plug in outlet. But I've transitioned back to pen and paper after having a couple of diffuculties with batteries on pretty much all handhelds (I've had Palm, some other brands, and this Ipaq is the latest). Nothing beats a good date book.

[Guest]

Batteries are $20.00 for my Ipaq, and so Soback, if you need yours replaced, PM me and I can install a new set for you.

I got all the tools, I have had to do a number of things to my Ipaq to keep it working because it get's dropped, so the ZIF connectors inside come loose, and I have to take it apart to reinsert them etc. I do Maintenance, and therefore I am leaning over, pushing on it etc, so it get's abused pretty badly...LOL

If you want a new set of batteries for the beast let me know, and let me know the model number as well.

[Soback]

Yeah, thanks, I'll let you know. When I poped it open, it had the battery (it looked like some flat aluminum bag) and it looked like it was just fused through conectors with the chip. I basically couldn't figure out a way to unplug it short of just pulling on the strip that was connecting it and ripping it from the chip. So I screwed it back together and threw it in the drawer. Telling you, lol, pen and paper really is the way to go.

So, what does the Ipod run on? Build in batteries or AAs? For all you know, it's just a ploy for people to buy new (when the batteries give out)

[jamotto]

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Originally posted by Soback:

So, what does the Ipod run on? Build in batteries or AAs? For all you know, it's just a ploy for people to buy new (when the batteries give out)

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Lithium Ion Batteries. You bet it's called Planned Obsolescence when they are ready for you to buy new devices they change the battery spec to something incompatible.

[Guest]

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Originally posted by Soback:

Yeah, thanks, I'll let you know. When I poped it open, it had the battery (it looked like some flat aluminum bag) and it looked like it was just fused through conectors with the chip. I basically couldn't figure out a way to unplug it short of just pulling on the strip that was connecting it and ripping it from the chip. So I screwed it back together and threw it in the drawer. Telling you, lol, pen and paper really is the way to go.

So, what does the Ipod run on? Build in batteries or AAs? For all you know, it's just a ploy for people to buy new (when the batteries give out)

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Seriously Soback, after paying, what? $150-$400 for your Ipaq, you're gonna let 20-30 keep you from getting it working mobile again?

I payed over $200 for mine, it's a 3835, and another $30 altogether to keep it working, it's well worth the cost to me....

Let me know man, I am more then happy to get yours working for you again, or, depending on the model, buying it from you....