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Apple's Latest iPad Costs About the Same as the First but With Slightly Lower Profits

Profit margins appear to have tightened, as just a bit of teardown analysis shows.

Courtesy IHS

Apple’s iPad Air 2 costs roughly the same to build as the iPad Air, with profit margins slightly lower than its predecessor, a teardown analysis of the device has shown.

The latest report from the research firm IHS, due later today and shared exclusively with Re/code, shows that the base model of the iPad Air 2, the 16 gigabyte Wi-Fi version, which sells for $499, costs $275 to build, exactly one dollar higher than the previous base model. The top-end model, the 128GB LTE version, which sells for $829, costs $358.

Apple’s implied profit margin on the iPad Air 2 has dropped slightly to a range of 45 percent to 57 percent depending on the device, compared with the original at 45 percent to 61 percent. Apple doesn’t disclose the profit margins on individual products, though it reports a total gross margin of 38 percent. It also doesn’t comment on teardown reports.

Considered more of a minor step forward for the iPad line than a major refresh — Re/code’s Walt Mossberg called it a “modest evolutionary improvement over last year’s models” — only a few things changed inside the iPad Air 2 versus the original, according to IHS analyst Andrew Rassweiler.

“Overall what we’re seeing is a series of refinements from iPad Air 1, nothing earth-shattering at all. But that’s par for Apple’s course,” he said.

Apple unveiled the device at an Oct. 16 event and played up the fact that it’s thinner than the original iPad Air. In promotional videos last year, the original was shown hidden behind a pencil to demonstrate its thin design. In a similar video this year, the pencil was made a little thinner by being trimmed by a laser.

The most expensive batch of components inside the Air 2 are associated with the display, but have changed only a little from one generation to the next. “It’s basically the same display from before, the same size, the same resolution, but with an anti-reflective coating added,” Rassweiler said. At $77 it accounts for 28 percent of the component cost, but is cheaper than the cost of the previous generation’s $90 display. The display is manufactured by two companies: LG Display and Samsung.

The main change is with the device’s main processor, the Apple-designed A8X chip. Rassweiler says that as with the A8 chip inside the iPhone 6 and 6 Plus, Apple has shifted some — but not all — of the manufacturing work to Taiwan Semiconductor Manufacturing Corp. and away from Samsung.

Apple had previously used South Korea-based Samsung as its chip manufacturer, despite the acrimonious patent litigation between them.

The main camera, he says, is more or less the same as that seen in the iPhone 6 and 6 Plus, but without image stabilization features seen on the iPhone 6 Plus. At $11, the combined cost of the front and back cameras is slightly higher on the Air 2 than the original Air. The identity of the supplier is not known.

The average cost for flash chips, Rassweiler says, is about 40 cents per gigabyte. Apple spend about $9.20 on memory for the low-end 16GB devices but as much as $60 for the higher-end 128GB devices, but charges $300 more at retail for the higher memory. “Apple reaps a pretty good profit for all that memory,” Rassweiler said. SK Hynix supplied the memory for the device torn down though Toshiba and SanDisk are considered likely memory suppliers as well.

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