The costs of things in relation to what we pay for them can often be markedly different. It's always kind of hard to swallow going to the movies and paying $3 for a small Coke when we know full well the costs of Coke syrup and carbonated water. Technology is no different, and seeing the costs of our favorite devices can leave us wondering where the expense comes from. IHS iSuppli's newest teardown, targeting the Apple (News - Alert) Watch, ought to leave some asking the same question about the new smartwatch.
The IHS iSuppli component cost teardown revealed what some had suspected about the device all along: the Apple Watch is a lot cheaper to build than a wide array of other Apple devices. The reports suggest that the Apple Watch's component cost is currently running at $83.70. Given that the device has a suggested retail price of $349, that's a fairly substantial markup.
Apple Watch's display accounts for the largest single expense in the device, as the combination of OLED and cover glass runs a reported $20.50 per unit. Apple's S1 processor, which powers the device, comes in second at $10.20 per unit. Several other parts come together—the charger, box, and other packaging issues—at $9. The device also incorporates eight gigabytes of flash storage from Toshiba, Micron RAM to the tune of 512 megabytes, a gyroscope and an accelerometer, as well as several other components from companies like Analog Devices (News - Alert), Broadcam, NXP and others.
Apple reportedly makes about 40 percent margin on current devices, after considering a variety of other costs ranging from research and development figures to marketing and shipping matters, so a good chunk of that markup is going into Apple's coffers directly. This is likely a side effect of Apple's incredible name recognition and its impressive fan base. Certainly there are other costs here as well, from licenses and software fees, so to suggest that Apple's profit on this is a little over $265 a unit is probably oversimplifying.
It's not that an Apple product isn't necessarily worth that kind of money; indeed, Apple products have long had a reputation for doing some impressive things for most—let's temporarily ignore those with wrist tattoos who have been having a tough time getting the devices to actually work—so such devices may well be worth the cost for those who routinely show up at Apple product launches to get the newest product of the day. But it's not hard to look at that huge Apple price tag (News - Alert), and then look at the wider market, and wonder how much longer Apple will be able to justify that markup in the face of a steadily-growing wearable device market. It certainly doesn't help matters that durability claims about the Apple Watch recently were found unable to survive a four-foot drop onto concrete under some conditions.
With the wearable device market growing at a staggering pace, there's a lot to watch out for. Certainly Apple Watch is right near the front of the pack, but with a steadily-growing number of competitors on hand and a huge markup on Apple's side, will Apple remain at that front for long? Only time will tell on that score, but it should be something to watch in the meantime.
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Edited by Dominick Sorrentino
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