iPad Price Gouging? Not Quite


iSuppli, the market research and analysis firm, came out with its final report on how much it costs Apple to make an iPad, and the magic number turns out to be about $260 for the baseline 16GB model, which sells for $500 at retail. Apple haters are surely whining that Apple is gouging customers with these prices while getting away with huge margins.

The reality is different. Apple wouldn’t make any money if it just charged slightly higher than the manufacturing costs. Apple has to pay for both hardware and software development, plus the costs of launching a completely new product. It also has to pay its employees, both at the Apple retail stores and at Cupertino itself. With these extra costs in mind, the price of the iPad doesn’t seem as high (many Apple analysts were actually predicting that the iPad would cost $1,000 or more). Apple’s margins are actually far less than other commodities like CDs, which cost about $1 to manufacture, yet are sold for around $10 at retail.

Apple gets these margins for each version of the iPad:

Model Retail Price Hardware Cost Margin
iPad 16GB $500 $260 48%
iPad 32GB $600 $290 52%
iPad 64GB $700 $350 50%

As you can see, the margins stay about the same as the hardware costs go up. Apple’s margins for new products have historically been around these numbers as well, so if you are being gouged (and you’re really not), at least you should be used to it by now.

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