New math: Apple spends $23 more than Amazon to build its "mini" tablet, but charges $130 more

New math: Apple spends $23 more than Amazon to build its "mini" tablet, but charges $130 more
Many casual gadget fans might wonder what the point is of those tear-downs. But not only are they interesting for the advanced Geek to see what is inside the device he is using, it also gives us a look at the different business practices of the manufacturers. Let's take a look at Microsoft. As we already told you, the Redmond based company spends $271 for components to build the Microsoft Surface RT. The tablet is priced at $499 and up. The Touch Cover brings in another $100 of pure profit to the bottom line.

You really can't compare the Microsoft Surface with its larger screen to the Amazon Kindle Fire HD. But we can compare the return on the investment in parts and the $165 that it takes to build the Android powered tablet provides very little return if any for the online retailer, who sells them for $199. After computing research and marketing costs, you have to figure that Amazon continues to lose on each unit sold. But here is the difference. As we pointed out more than a year ago, Amazon makes its money by selling Kindle Fire users content, apps and storage. Microsoft wants to make its money on the tablet since it doesn't have the content to sell like Amazon does. After selling content, apps and storage to Amazon Kindle Fire HD users, it is estimated that Amazon makes a $100 profit on each tablet sold which is a pretty decent return on a $199.99 device, although not as high as Microsoft's margin.

What about Apple? The previous tear-down revealed that Apple spends $188 to build the Apple iPad mini. One way to look at this is that Apple spends $23 more to build the iPad mini than Amazon does to build the Kindle Fire HD, but sells its tablet for $130  more. But that only serves to highlight the difference in the approach taken by the two companies. Amazon wants to get as many tablets into customers hands as possible so it can sell them all of the extras that it profits from selling. Apple, like Microsoft, wants to profit from the actual sale of the device.

Without knowing research and marketing costs or tax rates, we can't compute net profit margins, but based on the tear-down costs and retail pricing, Microsoft's return on its investment to produce its tablet starts at 84%. If Amazon does make $100 selling content, apps and storage, its return is 67% while Apple's figure is 75%. As juicy as it sounds, Apple has already said that the profit margin for the Apple iPad mini is less than the company receives for its other products.

None of the three manufacturers is actually giving away something for nothing. Amazon isn't in business to lose money, so you know that their business plan must be working for them. Microsoft and Apple are more traditional in their approach, which is to sell their tablets as high as possible and profit from the difference it costs the firms to produce them.

source: Gizmodo

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