Apple conference over; iPhone price drop, all-new iPods

[Xisiqomelir]

And the Wii. There are problems with all 3 teardowns. According to iSuppli, the Wii is sold at a ~$100 profit, the 60GB PS3 at a ~$200 dollar loss and the 360 Premium above cost. All of those are wrong, the Wii and PS3 estimates in magnitude, and the 360 one in stating that the hardware is profitable.

And we know how far off the estimates were because...? (And the 360 supposedly went from a loss to a profit since it was introduced.)

Of quarterly revenue statements.

[Mad]

Of quarterly revenue statements.

Ah, cool. So you've got the numbers, right? Are you willing to share? For the units mentioned, of course.

[Xisiqomelir]

Of quarterly revenue statements.

Ah, cool. So you've got the numbers, right? Are you willing to share? For the units mentioned, of course.

There's a GAF sticky that gets updated.

Special Microsoft note: The E&D division houses several profitable ventures (Mac games, mice and keyboards etc), so the full losses from Zune and Xbox are obscured.

[Mad]

There's a GAF sticky that gets updated.

Special Microsoft note: The E&D division houses several profitable ventures (Mac games, mice and keyboards etc), so the full losses from Zune and Xbox are obscured.

And we're supposed to get numbers for the X-Box 360, PlayStation 3, and Wii from numbers that include PSP, PS2, Zune, DS, GBA, and other assorted products (including software)... how?

For example, Nintendo gives hardware sales and revenue, but only gives cost of sales for all products (including software and playing cards). There is no hardware cost of sales to even begin to determine how far off the estimate of the unit production cost of a Wii is. So how can you claim to know how far off the estimate of the Wii production cost is, for example? Or for any other system?

What specific methodology did you use to calculate the accuracy of the estimates? What were your results?

[ANGELUS]

I like the iPod Touch (damn! I just bought an iPod Video four months ago )... If it had more PDA options and applications I would even be willing to change my Palm LifeDrive for an iPod Touch... it has much better music and video capabilities and four times the hard drive space (ok, two on the cheaper model), not to mention the superior touch screen. However, Apple doesn't seem to be much into PDAs since the failure that the Newton was (long before Steve Jobs returned to the company)... I wonder if they'll ever make that kind of applications for the new iPods...

Yet more proof that "early adopter" is a polite term for "sucker".

Heh!

[General Zod]

I like the iPod Touch (damn! I just bought an iPod Video four months ago )... If it had more PDA options and applications I would even be willing to change my Palm LifeDrive for an iPod Touch... it has much better music and video capabilities and four times the hard drive space (ok, two on the cheaper model), not to mention the superior touch screen. However, Apple doesn't seem to be much into PDAs since the failure that the Newton was (long before Steve Jobs returned to the company)... I wonder if they'll ever make that kind of applications for the new iPods...

I'm kind of annoyed at these new iPods coming out so soon after I bought my own 30gb, though they are tempting. But I'm going to wait until they increase the capacity of the iPod touch to at least 30gb before considering getting one. Otherwise you're just going to wind up getting fucked up the ass without lube again.

[Xisiqomelir]

And we're supposed to get numbers for the X-Box 360, PlayStation 3, and Wii from numbers that include PSP, PS2, Zune, DS, GBA, and other assorted products (including software)... how?

Shipment data, or retail tracking data to check sell-through instead of sell-in for consoles which have significant disparity between the two (PS3, PSP, 360). America and Japan are well-tracked, with public release, Europe less-so, but can be estimated, at least for the European countries which are significant console purchasers.

This isn't germane to the discussion of iSuppli's accuracy, though.

For example, Nintendo gives hardware sales and revenue, but only gives cost of sales for all products (including software and playing cards). There is no hardware cost of sales to even begin to determine how far off the estimate of the unit production cost of a Wii is. So how can you claim to know how far off the estimate of the Wii production cost is, for example? Or for any other system?

What specific methodology did you use to calculate the accuracy of the estimates? What were your results?

It doesn't really involve doing my own teardowns. iSuppli is very bad at keeping track of changing component prices, and their reports get inaccurate very quickly, at least for their publically-available stuff that gets quoted. The subscriber reports might be great and up-to-date, but I don't have access to them and don't know anyone who does subscribe.

iSuppli's PS3 teardown, not updated for the new BR diode costs. So iSuppli is still promulgating a ~$200 loss when it's been half that for some months now.

iSuppli's updated 360 teardown, which indicated $75 profit per Premium. Since the Premium was by far the more popular SKU at retail before the launch of the Elite, and since everything else in the Xbox project (MGS titles, Live and accessories) is profitable, E&D should have been profitable last quarter if iSuppli were correct. They still posted a sizable loss, so the possibilities are that iSuppli is wrong, the SHA expenses are amazingly large, or that Zune marketing is really expensive.

This Japanese Wii teardown puts costs at $195.99.

[ANGELUS]

I'm kind of annoyed at these new iPods coming out so soon after I bought my own 30gb, though they are tempting. But I'm going to wait until they increase the capacity of the iPod touch to at least 30gb before considering getting one. Otherwise you're just going to wind up getting fucked up the ass without lube again.

Yes, I have a 30GB too... I bought it because I wanted a video-capable iPod, not so much for the hard drive size. I have barely 10GB of occupied space on my iPod... I just bought it instead of a Nano because of the video. I think the Touch would be a good choice for me because it has video (and a huge screen) and I don't need so much hard drive. But you are right, looking at how the iPhone's price droped so drastically I think we should wait. Besides, I would like for it to have more PDA applications.

[J]

Picked up a 160GB Classic on the way home from work today, Apple has done a really nice job on the redesign. Slimmer, shinier, and now with enough space to fit all the music I want to hear in lossless format if we want. It looks and feels so much better than the old one we have, and according to my fiancé the audio quality has also been improved. I'll likely never get around to playing with 3/4 of the features since all I do is load it full of albums and make it play music on my daily commute, but I might hand it over to the resident audio geek for a week and let him go go crazy figuring out all the menus and functions.

[RThurmont]

I hate to say it, but I think that the new iPod Nano is butt ugly. I own a prior-gen ProjecT red iPod Nano, which, IMO, was a great design: elegant, with beautiful colors and exquisite proportions. The new iPod Nano looks like a bloated characiture of the old one, and worse, the new colors on it and the Shuffle are quite literally nauseating. I can't begin to express how dissappointed I am with the new designs...it reminds me of the turn off when the original iMac was replaced by the disgusting first-gen LCD iMac (in my opinion, as a designer, that second gen iMac was probably the most overrated industrial design of all time).

This is especially dissappointing from my perspective given how successful other recent Apple designs are (from an aesthetic perspective); I think the new iMac and the new keyboards are hot. I have two very major criticisms of Jonathan Ives and his design team at the moment: they aren't able to maintain a consistent level of design quality across Apple's growing product line, and they also aren't maintaining a consistent visual appearance, which results in Apple's products reflecting a hodgepodge of different styles (the metallic and white plastic looks from 2001, the black plastic look of 2005, the colored metal look of 2006, and the silver-and-black look of 2007).

Compare this to IBM's industrial design, which is consistent in its appearance from the largest Blue Gene supercomputer, to, before they sold it, the smallest desktop (interestingly enough, the IBM ThinkCentre S50 desktop features a slanted front bezel which evokes the Blue Gene's trapezoidal shape).

[Soontir C'boath]

The new Nano looks very similar to the Zen V Plus as well but manages to look less pleasing. How could that happen!

I wonder if the 2G Nano will become a valuable player to sell on eBay.

[Durandal]

I have two very major criticisms of Jonathan Ives and his design team at the moment: they aren't able to maintain a consistent level of design quality across Apple's growing product line, and they also aren't maintaining a consistent visual appearance, which results in Apple's products reflecting a hodgepodge of different styles (the metallic and white plastic looks from 2001, the black plastic look of 2005, the colored metal look of 2006, and the silver-and-black look of 2007).

Some changes are just improvements and the result of better materials coming along. Others are for the sake of branding and design refresh. Customers need to feel like they're using something new, and changes done for that sake that don't sacrifice usability are pretty justifiable.

Designs have to evolve over time or they get stale. Today's Ford Mustang is not 2001's Ford Mustang, and neither is today's iPod 2001's iPod.

[RThurmont]

No one is disputing that Durandal. My gripe with Apple is the lack of visual consistency across their line, and the fact that occasionally, for example, in this instance, the new design isn't as aesthetically pleasing as the old one. Usually Apple avoids that, but in this instance, some of those new iPod colors are seriously crappy. Taken as a whole, the new line of iPod colors is a tad nauseating, I'd say. Also, the squat iPod Nano fails to live up to the high standard set by its predeccessors, both of which (1G and 2G) were gorgeous by any definition.

IMO IBM industrial design is superior to that of Apple due to the fact that the visual identity is consistent, and also, if you look at IBM's products since the 1950s, there are seldom any models that are jarringly uglier than their predeccessors (such as with the new iPods). The ThinkPads embraced the same aesthetic when sold to Lenovo as they did when first introduced, albeit with continual, subtle refinemenets.

[Sea Skimmer]

To all you who already bought Iphones, why on earth didn’t you take the warning seriously? What’s the word on the contract you have to sign to use the thing in its uncracked form anyway? I’ve heard that the total cost for two years is around 2000 US dollars, but I find that hard to believe.

[Praxis]

I’ve heard that the total cost for two years is around 2000 US dollars, but I find that hard to believe.

That's accurate, but even 2000 dollars is cheaper than most cell phone + data network + texting plans for PDAs.

[phongn]

To all you who already bought Iphones, why on earth didn’t you take the warning seriously? What’s the word on the contract you have to sign to use the thing in its uncracked form anyway? I’ve heard that the total cost for two years is around 2000 US dollars, but I find that hard to believe.

Assume a contract cost of $60/mo for 24 months; that's $1440 (and then there are the usual fees tacked on afterwards). Add in the old iPhone cost of $500-600 and you're spending around $2000 total.

[Ypoknons]

Pretty industry standard for unlimited data plus some voice these days. Americans at large don't have a history of buying expensive and powerful phones, so the iPhone seems pretty expensive.

[Mad]

Shipment data, or retail tracking data to check sell-through instead of sell-in for consoles which have significant disparity between the two (PS3, PSP, 360). America and Japan are well-tracked, with public release, Europe less-so, but can be estimated, at least for the European countries which are significant console purchasers.

If I'm not mistaken, since the manufacturer sells the units to retailers (for less than the retail price, obviously), shipped units (AKA "sold to retailer") should count towards revenue. Nintendo, for example, would not earn $249.99 in revenue for each Wii shipped.

It doesn't really involve doing my own teardowns. iSuppli is very bad at keeping track of changing component prices, and their reports get inaccurate very quickly, at least for their publically-available stuff that gets quoted. The subscriber reports might be great and up-to-date, but I don't have access to them and don't know anyone who does subscribe.

iSuppli's PS3 teardown, not updated for the new BR diode costs. So iSuppli is still promulgating a ~$200 loss when it's been half that for some months now.

What does this have to do with the accuracy of the estimate when it was first published?

iSuppli's updated 360 teardown, which indicated $75 profit per Premium. Since the Premium was by far the more popular SKU at retail before the launch of the Elite, and since everything else in the Xbox project (MGS titles, Live and accessories) is profitable, E&D should have been profitable last quarter if iSuppli were correct. They still posted a sizable loss, so the possibilities are that iSuppli is wrong, the SHA expenses are amazingly large, or that Zune marketing is really expensive.

Microsoft sells the consoles to retailers for less than retail, so a $75 difference between retail and estimated manufacturing costs doesn't mean Microsoft gets a $75 profit. In the 4th quarter, Microsoft also had to account for the warranty policy change. That's not accounting for any additional R&D costs we wouldn't know about.

This Japanese Wii teardown puts costs at $195.99.

And this estimate from a Japense link that I can't read is off by how much?

I can easily accept that these estimates are off somewhat, but your reasoning for it is overly simplistic and flawed. More importantly, it doesn't begin to address why the iPhone estimate would be grossly unreliable.

At least Praxis' link has a link buried on the page somewhere to an alternate estimate. Unfortunately, the alternate estimate suggests that Apple now makes next to nothing (or even a loss) by selling the iPhone, which would be unexpected.

[Praxis]

What does this have to do with the accuracy of the estimate when it was first published?

Because it doesn't make sense. My link points out the fact that the iPhone outspecs every single higher-priced competitor; are you going to seriously suggest that every smartphone/PDA maker in the US makes a >50% profit?

At least Praxis' link has a link buried on the page somewhere to an alternate estimate. Unfortunately, the alternate estimate suggests that Apple now makes next to nothing (or even a loss) by selling the iPhone, which would be unexpected.

Actually, breaking-even would make sense. Consider that normal phones sell at a loss, which is made back by the subscription. You're suggesting that Apple sells theirs at a HUGE profit in addition to a subscription; with the subscription in place, Apple could afford to sell it for break-even or a minor loss.

On top of that, now that the electric-based multitouch screen is now in mass production I'd imagine a significant drop in manufacturing costs. Add to that dropping costs of flash memory and the fact that Apple probably just finished paying off their R&D bills, and the price drop makes sense.

[Mad]

What does this have to do with the accuracy of the estimate when it was first published?

Because it doesn't make sense. My link points out the fact that the iPhone outspecs every single higher-priced competitor; are you going to seriously suggest that every smartphone/PDA maker in the US makes a >50% profit?

That has absolutely nothing to do with my question to Xisiqomelir about the accuracy of the PS3 estimate at the time it was published, yet it is more on-topic than any discussion of the PS3.

Anyway, Research In Motion Limited, maker of the BlackBerry, recently reported revenue for "Devices and other" as $2,303,800 thousand and $1,265,251 thousand for cost of sales for the same for a 45% gross margin for devices, so they're making quite a profit. (Keep in mind that the estimated component costs for an iPhone can't include other manufacturing costs that would be included in the gross margin here.)

Actually, breaking-even would make sense. Consider that normal phones sell at a loss, which is made back by the subscription. You're suggesting that Apple sells theirs at a HUGE profit in addition to a subscription; with the subscription in place, Apple could afford to sell it for break-even or a minor loss.

Source? This flies in the face of your previous link, which stated that most phones are subsidized by the carrier for $250, and it also said that the iPhone is also subsidized. There was no source given, though (which is strange considering how many links that site throws around). I've not heard anything about the carrier typically sharing the subscription fee with the phone manufacturer; any agreement Apple has with AT&T in this regard would be nonstandard.

John Hodulik, an analyst who attended an AT&T investor meeting, said that the iPhone is unlikely to be subsidized: "In fact, AT&T may generate a small margin on sales of the [iPhone] in its stores." If AT&T generates a margin on iPhone hardware sales, then it's impossible for the iPhone to be subsidized like a typical mobile phone. However, Apple did apparently strike a deal with AT&T for revenue sharing on the subscriptions. So you may be right about the iPhone even though you're wrong about basically every other phone out there.

On top of that, now that the electric-based multitouch screen is now in mass production I'd imagine a significant drop in manufacturing costs. Add to that dropping costs of flash memory and the fact that Apple probably just finished paying off their R&D bills, and the price drop makes sense.

That speculation isn't enough to account for why the iPhone's price was dropped within an unprecedented amount of time.

Assuming the higher production cost of "well above $300 for the 4 GB model" estimated by DisplaySearch is accurate, then the iPhone went from making a decent profit per unit plus revenue sharing to pretty much having to rely on revenue sharing.

[Arthur_Tuxedo]

Paying off R&D doesn't explain the price drop because it's a sunk cost. It doesn't affect the demand or the marginal cost, which is where the optimal price point comes from. The only thing up-front R&D costs affect is the time it takes to break even. In the real world, it might affect the price somewhat, since most companies will use average cost instead of marginal since it's easier to measure, but they still wouldn't drop the price after R&D costs are paid for. If people were willing to keep buying at $600 in comparable numbers and your R&D bill is cleared, why give up $200 of pure profit?

[Ypoknons]

They're trading revenue right now for market share and a larger user base, in hopes that having a larger market share will pay off in the long run (more return customers buying future iPhones before competitors can copy/improve upon Apple's designs, maybe potentially making iPhone a platform... it's not really clear exactly what right now) and that investors feel the same, making the stock price rise.

[Phantasee]

I was hoping that they would release a 6th Gen iPod, so that the 5th Gen would be discontinued and I could grab an 80GB Video for cheap.

Apparently, Best Buy (I have a hookup there) is selling their stock of 5.5G 80GB Videos for the low low price of 299.99, while their price for the same size in the new Classic is the exorbitant 279.99.

Go figure

I guess I'll flip a coin -- that'll decide if I'm standing in line or waiting a month before I pick one up.

My music collection recently reached 20GB, which means the 30GB models produced by most MP3 player makers are inadequate for me. I never thought I'd get an iPod, but their ease of use, plus their capacity and battery life, means I'm another customer.

Hopefully the 80GB model will be sufficient, and I won't be tempted to fill it with video and squander the capacity on pretty moving pictures

[fgalkin]

I was going to get a Nano too... Now it's ugly and fat and... ugly. yeah. What were they thinking on that one?

In other news, 160 GB?!? Can I use ipods for file storage?

You're missing a decimal place there. It's 16 GB. Not 160.

No, it's 160. Yes, an iPod with a bigger hard drive than the computer I'm using right now.

Have a very nice day.
-fgalkin

[General Zod]

I was going to get a Nano too... Now it's ugly and fat and... ugly. yeah. What were they thinking on that one?

In other news, 160 GB?!? Can I use ipods for file storage?

You're missing a decimal place there. It's 16 GB. Not 160.

No, it's 160. Yes, an iPod with a bigger hard drive than the computer I'm using right now.

Have a very nice day.
-fgalkin

Uhm, yes? So? This was addressed a page ago.