Apple iPod: A classic stopgap measure

USA: Apple Inc.’s new iPods typically are forward-looking products that push the envelope in terms of functionality and electronic design. However, with the iPod classic, Apple has taken a backward-looking approach to Personal Media Player (PMP) functionality and technology, according to research from iSuppli Corp.’s Teardown Analysis service.

While the rest of the iPod line has migrated to solid-state flash memory, the new iPod classic continues to employ venerable hard-disk drive (HDD) technology for storage. Furthermore, the iPod classic lacks some of the other advanced features found in the other new iPods, namely wireless capability and a touch screen. On the inside, the classic’s design is essentially the same as the existing flagship iPod, with a few changes in parts and component suppliers.

This allows Apple to offer the product at a lower price and with more storage capacity than the existing iPod, while maintaining a healthy margin. However, the classic’s dated features suggest stopgap measures that are likely to limit the product’s longevity and success in the market, iSuppli believes.

Apple makes money the hard (drive) way

While Apple pays $78 for the 80Gbyte HDD in the low-end classic, it pays approximately $140 for the 160Gbyte HDD in the high-end model.

"Apple typically makes more money on the higher-capacity versions of its products," noted Andrew Rassweiler, teardown services manager and principal analyst for iSuppli. "This is because the only difference between the low- and high-end products is the cost of the HDD and the flash memory chips."

BOM breakdown

The iPod classic carries a Bill of Materials (BOM) of $127 for the 80Gbyte version, and about $190 for the 160Gbyte model, according to iSuppli’s Teardown Analysis service. The iPod classic is priced at $249 for the 80Gbyte model and $349 for the 160Gbyte version.

iSuppli’s estimates of the new classics’ BOMs are strictly limited to costs for components and other materials used to construct the products. The estimates do not include costs for manufacturing, marketing, software, intellectual property, accessories and packaging.

The BOM figures also do not include research and development costs, because such data cannot be derived from a teardown and component analysis.

The table presents a summary of iSuppli’s iPod classic teardown BOM. The 80Gbyte version of the classic carries a BOM that is 11.2 percent lower than that of the previous flagship iPod’s $143 cost. With the previous model having only 30Gbytes of capacity, the classic succeeds in reducing BOM cost while increasing its storage.

Flash vs. HDD

Apple has been making extensive use of NAND flash memory in the iPod line, taking advantage of the 50 to 60 percent annual reductions in pricing to maintain or decrease its costs, while doubling its products’ storage capacity every year and holding its pricing largely steady. However, with the HDD-based classic, Apple also may want to address users that make extensive use of storage.

"Apple’s continuation of the iPod model without adding new features suggests a stopgap measure necessitated by lack of time to develop an HDD-based touch iPod," said Chris Crotty, senior analyst, consumer electronics, for iSuppli. "Apple may not have had time to develop an HDD-based touch-screen iPod before the 2007 holiday season."

A crowd pleaser?

iSuppli tentatively forecasts that iPod classic shipments will start with a bang, rising to about 3.1 million units in 2007. However, growth will slow markedly after that, with shipments rising by only 12.9 percent to reach 3.5 million in 2008.

In contrast, combined shipments of the new iPod nano and touch models will amount to 26 million units in 2007 and will rise to nearly 40 million units in 2008, for a 52 percent increase.