Comments on: A voyage inside the iPod Shuffle

An analyst dissects a Shuffle, details what she finds and takes a guess about the profit Apple's making on the device.
Photos: The littlest iPod

Apple Profit on iPod Shuffle

The parts may cost X and the product may cost Y, but that
doesn't mean that the difference = profit. There's R&D,
production, distribution, marketing & advertising in there too.
After all that is taken out, what remains is profit. Kinda basic,
but it apparently bears repeating.

gmcv

[mortis9]

yep

they seem to have gotten confused somewhere between revenue and profit. even with a 90% revenue, if they don't sell enough it won't cover r&d, advertising (very expensive), and production/distribution overhead.

[whitewater]

Gross vs. net

You're talking about the difference of gross profit vs. net profit, which is all well and good. In that case don't forget to subtract the cost of packaging and shipping as well, since Apple is offering free shipping if you buy from their web site.

The thing that the analyst forgot is that the gross profit isn't the difference between the cost of materials and retail price, it's the difference between the cost of manufacture (materials and labor if nothing else) and the *wholesale* price. It's fine if Apple is supposedly making 40% when they sell it on their web site, although I suspect that actual gross profit is significantly lower. But when Apple sells it through other retailers (Amazon, Micro Center, etc.) their profit margin will go down significantly because the retailers have to get their cut as well, which I'm guessing will be in the 20-30% range.

[shoffmueller]

No anatomy pictures?

Love to see pictures of the inside of this thing. Dang.

[heystoopid]

what no wma/mp3 playback bad idea

The report shows a number of very serious short comings of this unit,including the lack of ability to play wma files(not Napster compatable). The current competitors in this field offer better value for money, Apple will have to do a lot of work to address this units shortcomings as currently released. Undoubtedly, Apple's battery replacement policy charges, for this unit will follow it's bigger brothers, empty your wallet policy.

Well, you didn't take into account

that WMA SUCKS. It's the next worst format to Real's technology. Why should they include the ability to play crap, when MP3, MP4, and Apple Lossless are superior quality in every single way?

And Napster? Yeah. Cos we want the songs we download to not be owned by us. We'd rather them shut off music when we stop subscribing, meaning all downloads lock and can't be played. PFT. People call Apple proprietary and a music-monopoly. Least you OWN the songs you buy from Apple.

[iKenny]

good idea

Actually, the iPod shuffle does support MP3 playback. Also, not
supporting WMA is a good idea if you think about it, since Apple
has a competing music format, QuickTime and AAC, and
whenever someone buys an iPod or uses iTunes, that's one less
customer using WMA to listen to their music. It's Apple hitting
on two fronts with one device. What the disabling allows it that if
customers suddenly demand WMA support and refuse to
purchase iPods without it, Apple can quickly activate it with a
firmware update.

Just so you know, iTunes for Windows will convert unprotected
WMA files into AAC files so an iPod can play them, so technically
Apple does support WMA.

[Llib Setag]

iTunes converts WMA to AAC + MP3

go to www.apple.com/ipod OR www.apple.com/itunes

iPods play MP3,AAC,WMA & Audible book files.

iTunes will convert any UNPROTECTED / DRM Windows Media File music to MP3 or AAC.

Get the facts & stop the disinformation.

[technewsjunkie]

My shuffle is empty, I don't how it's working!

I opened it up and it's empty. Go figure.

[jmmejzz]

Margins According to Apple

"Oppenheimer (Apple CFO) was asked about lower iPod margins.
In 2004, the
company saw its margins on the popular music player drop from
27 to about 20 percent. Oppenheimer explained that this was
due to increased production of the iPod mini, its own price cuts,
and an increase in its production of iPods sold to Hewlett-
Packard. Oppenheimer noted that margins on the iPod shuffle
are "below the aggregate" of the margin for Apple's hard drive-
based players."

I would imagine this is not as much as a guess as is the authors
opinion in the article.

Very poor analysis

Shame for such a poor analysis. Very much an amateur job from a respected organization. Makes you wonder about their other reports, doesn't it?
Missing costs to produce the product include: the manufactuer's direct labor (the people building it), indirect labor (others needed to support the assembly operation such as qc engineers and testers, buyers, managers, etc.), the manufactuer's profit and overhead (not Apple's, but their supplier), packaging instructions, shipping, and Apple's own support to the manufacturer and their R&D. If these are factored in, along with the distribution channel's margin at non-Apple stores, the conclusion is quite different. This story has been picked up by many papers and just perpetuates erroneous information. As I journalist I find this regrettable. How about a retraction from IDC?