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Shuffling Margins, iPod Shuffle Teardown Leads to New Estimates

Ask an accountant or economist to define the value of an iPod Shuffle, or what it’s worth, and you might get a few dissertations in reply.  Ask what it costs? That’s a little easier to peg.

Market research firm, iSuppli, has done a teardown of the device and estimates the diminutive MP3 player is made from a minuscule $21.77 in parts.

Business Week reports in its summary that nearly half of that comes from two Samsung parts: the controller chip and flash memory.

The price is purely hardware, and it is merely an estimate. It doesn’t include development costs or sales and marketing expenses but even so, it suggests the gross margin on the player should well exceed the 34.7% Apple reported across all products for the quarter ended in December.

apple marginsIn fact, based on a hardware cost of barely more than a quarter (28%) of its $79 retail pricing, the new Shuffle appears far less expensive to build then its iPod cousins and should outperform in the Gross Margin category, maybe yielding a Gross Margin as high as 55%.  (if total direct costs per unit are $35, GM at current retail pricing would be about 56%) .

Gross margins on other iPod models (based on similar iSuppli, Portelligent or iFixit teardowns) have widely been estimated to fall somewhere between 40 and 50% per unit depending on the model, and also, Apple’s ability to manage flash memory price fluctuation.

(For pictures and more details on the innards of the newest Shuffle, check out this recent teardown report from iFixit. The components are so small, without the casing, the company found that the electronics and battery weigh less than a sheet of paper).

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