Apple IPad Parts May Cost as Little as $260, ISuppli Says After Teardown

Apple Inc.’s iPad tablet computer cost as little as $259.60 to build, according to an analysis by market research firm ISuppli Corp.

Materials for the iPad, which went on sale on April 3, include a touch-screen display that costs $95 and a $26.80 processor designed by Apple and manufactured by Samsung Electronics Co., according to El Segundo, California-based ISuppli.

Analysis by ISuppli indicates that components of the lowest-priced, 16-gigabyte iPad amounts to 52 percent of its retail price of $499. That leaves the iPad on par with other Apple products, including the iPhone 3GS. A high-end 64-gigabyte version of the iPad, which retails for $699, contains components that cost $348.10, according to ISuppli.

Much of the iPad’s component costs went toward making the device appealing to use, said ISuppli principal analyst Andrew Rassweiler, who supervised the “teardown” analysis of the product. More than 40 percent of the iPad’s cost is devoted to powering its touch-screen display and other components of the computer’s user interface -- “what you see with your eyes and what you feel with your fingers,” he said. The distinctive aluminum casing on the back of the device contributed about $10.50 to cost of materials.

Apple spokeswoman Natalie Harrison declined to comment on ISuppli’s findings.

Teardown Analysis

Research firms conduct so-called teardown analysis of consumer electronics to determine component prices and makers and to estimate profit margins. The estimate doesn’t include costs for intangible items such as software development, advertising, patent licensing or shipping. In February, ISuppli had estimated that the least expensive iPad would carry a $219.35 cost of materials.

Once it took one apart, ISuppli found more silicon chips than it had expected to power interactions with the iPad’s 9.7- inch screen.

“Because of the sheer scale of this device, we’re seeing more here than we expected,” Rassweiler said. Apple uses three chips to control the iPad’s touch screen, for example.

Over time, Apple may have leeway to combine many of the iPad’s electronic components, or integrate them into the display, Rassweiler said.

“We’ll see a lot less silicon required to make them work,” he said.

Pricey Touch Screen

Apple, based in Cupertino, California, rose $1.06 to $240.60 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have climbed 14 percent this year.

The most expensive component in the iPad is its touch- sensitive, custom-manufactured screen. South Korea-based LG Display Co., Samsung and Japan’s Seiko Epson Corp. make the LCD display, according to ISuppli. Taiwan-based Wintek Corp. makes the glass overlay necessary to detect touches of users’ fingertips. The screen’s special design makes it about twice as expensive as those used in comparably sized netbook computers, according to Rassweiler.

LG spokesman John Taylor didn’t return a call seeking comment. Wintek spokesman James Chen, based in Taiwan, and an Epson spokesman couldn’t immediately be reached for comment. Chris Goodhart, a spokeswoman for Samsung, declined to comment.

Flash memory chips, obtained from various suppliers including Samsung, account for $29.50 in costs on the 16- gigabyte model, $59 in the 32-gigabyte version and $118 in the 64-gigabyte model, Rassweiler said. These chips push the cost of manufacturing the 32-gigabyte version of the iPad, which sells for $599, to $289.10. They boost the cost of the 64-gigabyte version, which sells for $699, to $348.10.

Samsung Processor

While Apple designed the main processor in the iPad, Rassweiler said South Korea’s Samsung built the chip for Apple and also supplied a memory chip attached to it for a combined cost of $26.80, a difference of $9.80 over the previous estimate of $17.

“We believe that this chip was designed by PA Semi,” Rassweiler said, referring to the chip company that Apple acquired in 2008 for $278 million. “But the markings make it look like a Samsung chip.”

Other chips found in the iPad also proved more costly, and more numerous, than original estimates. Broadcom Corp. supplied a chip that cost $8.05 and handles both Bluetooth and Wi-Fi wireless data connections, as well as two others that together cost $3.70 and are used to control the touch screen. Texas Instruments Inc. provided a chip used to help control the touch screen at a cost of $1.80, while Cirrus Logic Inc. supplied an audio chip that cost $1.20.

Bill Blanning, a spokesman for Broadcom, didn’t return a message seeking comment. Kimberly Morgan, a spokeswoman for Texas Instruments, and Bill Schnell, a spokesman for Cirrus, declined to comment.

To contact the reporter on this story: Arik Hesseldahl in New York at arik@businessweek.com.

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