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Teardown Shows Apple Watch Sport Costs Just $84 to Build

IHS says the Apple Watch has the lowest component cost relative to retail price of any Apple product it has examined.

Vjeran Pavic for Re/code

The Apple Watch Sport costs $84 to build — just a quarter of the suggested retail price for the newly introduced device — according to IHS Technology’s analysis of the cost of materials and manufacturing.

The research firm said the components inside the Apple Watch add up to the lowest combined cost relative to its retail price of any Apple product it has ever examined. IHS routinely conducts teardown studies of devices from Apple and other companies to determine the identity of suppliers, but also to estimate the cost of each component.

The teardown of the 38mm Apple Watch Sport shows an estimated bill of materials of $81.20, with the cost rising to $83.70 when the projected manufacturing expense is added. The device’s retail price is $349, implying a gross margin of nearly 76 percent.

If true, that appears to contradict comments from Apple’s Chief Financial Officer Luca Maestri when he told investors during the company’s March quarter earnings call that the Apple Watch margins will be lower than company average of 40 percent.

IHS Technology notes that its analysis doesn’t take into account numerous other costs unrelated to hardware that would impact Apple’s overall margin on the Apple Watch. There’s no accounting for software development or the creation of specialized manufacturing tools, research and development or marketing.

IHS recently examined the iPad Air 2 and the iPhone 6 and iPhone 6 Plus. It found that the component costs for those devices implied gross profit margins of 45 percent for certain iPhone models to as high as 70 percent for certain iPad models.

“It is fairly typical for a first-generation product rollout to have a higher retail price versus hardware cost,” said Kevin Keller, senior principal analyst for materials and cost benchmarking services for IHS. “While retail prices always tend to decrease over time, the ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple’s bottom line if sales match the interest the Apple Watch has generated.”

A spokesperson for Apple declined to comment on the IHS report.

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