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The new iPod Nano family sports a healthy hardware profit margin.  (Source: Apple)
The new iPod is very cheap ... for Apple: the new iPod Nano makes a handsome profit

Apple Inc. is apparently profiting handsomely off its new "fat" iPod Nano. DailyTech announced the arrival of the new "fat" iPod Nano earlier this month after weeks of rumors.

Retail analyst iSuppli estimates that Apple's new "fat" iPod Nano 4 GB, priced at $149, costs just $58.85 to make, while the 8 GB model, priced at  $199, costs $82.85 to make.  iSuppli tore down the Nanos and took a piece-wise inventory of the hardware components to create these estimates.

These estimates indicate that Apple will make a profit of over $90 dollars per unit on the 4 GB model  (about 60% profit), and a profit of over $113 dollars per unit on the 8 GB model (about 57% profit).

ISuppli estimated the cost of parts to be $13 dollars per unit cheaper than the old 4 GB nano, and $31 dollars per unit cheaper than the original Nano, introduced in September 2005.

It is important to note iSuppli's estimates don't account for non-hardware costs, including software development, intellectual property, packaging, final assembly and distribution.

The larger profit margins may add up to big profits for Apple -- 41 million iPods sold over the last three quarters, and iSuppli conservatively estimated 23 million nanos to sell in the 2007 fiscal year and 28 million in 2008.

iSuppli analyst Chris Crotty claims that Apple is a master of forcing suppliers to compete with each other, in order to drive down prices.  For example, the touch wheel was originally supplied by Synaptics, then in the last generation, Apple switched to Cypress Semiconductor, and now Synaptics has outdone Cypress to regain its position in the new "fat" Nano.  The total saving to Apple was relatively paltry, $0.13, but those little cost cuts add up.  The power regulation circuitry was previously supplied by NXP Semiconductors, but is now supplied by smaller German firm Dialog Semiconductor.

Perhaps Apple might have saved a bit too much money on the screen, as there have been significant early complaints concerning it including serious problems with the display's black levels leading to images "bleeding" and otherwise artifacting, as reported at DailyTech.

Despite its critics, Apple's iPods remain wildly popular, and Apple's iPhone is selling significant numbers.  Apple seems to be following in the footsteps of the Nintendo Wii in creating hardware that has a large profit margin, while staying cutting edge. 




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