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The Numbers Inside the New iPod

Apple Computer's latest iPod has some new capabilities -- namely the ability to play videos -- and also a notable new supplier, according to a market research firm which has taken apart the new gadget to see what's inside.

That market researcher, iSuppli, says chipmaker Broadcom (BRCM) is the new name among a list of chip and component suppliers that has changed little from other iPod models over the years. Broadcom's chip handles the video, while longtime suppliers PortalPlayer (PLAY) and Wolfson Microelectronics are still responsible for audio chips.

The latest iPod, like its smaller sibling, the iPod Nano, enjoys similarly fat gross profit margins in the neighborhood of 50%, according to iSuppli analyst Chris Crotty, who estimated the price of the parts used in the iPod (see BW Online, 9/21/05, "Unpeeling Apple's Nano"). He reckons the 30-gigabyte version of the new iPod, which sells at retail for $299, costs Apple (AAPL) $151 to manufacture. "This is in line with what we have seen with other iPod products from Apple," he says.

CHIP ASSIGNMENTS. The design win for Broadcom may be new, Crotty says, but it's by no means permanent. PortalPlayer is known to have a chip that handles both video and audio at the same time, while Texas Instrument (TXN) last month launched a new series of chips called DaVinci aimed at video gadgets (see BW Online, 9/8/05, "TI Heads For Gadgetland").

"In this case, the Broadcom chip is just for video and the PortalPlayer chip is just for audio," Crotty says. "Right now, Apple is keeping the functions separate. Over time, you'll see more chips that do everything. But now it's probably more cost effective for Apple to do it with separate chips."

Landing a chip in the iPod is a new victory for Broadcom, which does a booming business supplying video chips to TV set top box manufacturers. Last year, Broadcom increased its revenue derived from consumer electronics by 143%. Crotty figures the market for chips devoted to the portable media player product category -- in which video-ready players will become increasingly common -- may reach $6.4 billion by 2009.

CLOUDY PICTURE. For the quarter ended Sept. 30, Broadcom reported a profit of nearly $133 million on sales of $695 million. Its stock price closed up 72 cents, or 1.65%, at $44.30 on Thursday. Stock in PortalPlayer closed down 72 cents, or 2.7%, at $25.68.

Again, Apple is showing some weakness on the display front. Having already taken some heat from customers who complained about Nano displays that were prone to scratching and in some cases cracking, Apple could find itself with a display supply problem this time around (see BW Online, 9/29/05, "A Very Sour Note for Apple"). The display for the video iPod is coming from one supplier -- a Toshiba-Matsushita joint venture. "We know that Apple has only one source for the display of this iPod," Crotty says. "And we also know that it is supply-constrained."

Apple is known to have at least three suppliers for Nano displays, including Optrex, Sharp Electronics, and the Toshiba-Matsushita combine, all Japanese companies.

AIR OF MYSTERY. Apple has already disclosed worries about a supply problem for the iPod Nano. In a conference call on Oct. 11, Apple CFO Peter Oppenheimer described demand for that player as "staggering," and conceded that at least one component was in short supply for the Nano, though he declined to say which one (see BW Online, 10/12/05, "Unexceedable Expectations"). He also declined to speculate when he thought Apple might catch up.

If this all reads like a detective story, it's no accident. Apple rarely discloses the identity of its suppliers, and in the case of displays, the suppliers themselves do their best to obscure their identities.

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