Daniel Hruska The price analyzes of our products that appear regularly are very different from reality. I have yet to see a single one that is even remotely accurate.
- Tim Cook
The launch of a new product is very often followed by an "autopsy" of the components used, according to which some analysts try to estimate the real price of the device. However, as the statement of the executive director of the Cupertino company summarizes above, the analyzes are not very accurate. According to IHS, it costs Apple to make the Watch Sport 38mm 84 dollars, in TechInsights again estimated the Watch Sport 42mm at 139 dollars.
However, similar analyzes do not carry much weight, as they have several shortcomings. It is difficult to appreciate a product that you did not participate in the development and production of. Only a few people at Apple know the true cost of Watch components. As an outsider, you simply cannot come up with an exact price tag. Your estimate can easily vary by a factor of two, both upwards and downwards.
New products often contain new technologies that are more complex and less profitable to begin with. Development simply costs something, and you won't find out its costs from the final product. To make something truly new, you have to come up with your own materials, manufacturing processes and equipment. Add in marketing, sales and logistics.
As you can easily deduce, estimating the price of a Watch without seeing the whole process is a difficult task. With more effort, the analysis could be made more precise, hence the server Mobile Forward pointed out some facts, after the addition of which the cost of production of the Watch must increase quite a bit compared to the above analysis.
Components are more expensive than you might think
Both the customer and the manufacturer benefit from new technologies. If everything works out, these technologies are the source of the manufacturer's profits. No product has ever just fallen from the sky - you start with an idea, which you then transform with prototypes until the desired result. The production of prototypes, whether in terms of material or used devices, costs a lot of money.
Once the need for the existence of specific components arises from the prototype, it can happen - and in the case of the Watch it happened several times - that no one makes some components. So you have to develop them. Examples can be the S1 chip aka miniature computer, Force Touch display, Taptic Engine or Digital Crown. None of these components existed before the Watch.
Before mass production begins, the entire process needs to be fine-tuned. The first pieces will be mostly scraps, the next thousands need to be made for testing. Figuratively, one could say that somewhere in China there are containers full of Watches of considerable value. Again, everything comes from Apple's pockets and it must be reflected in the final price of the components.
The products need to be delivered
Production is running at full speed, but many customers live on the other side of the world. Shipping is cheap, but terribly slow. Apple transports its products from China by plane, where they transport in a single flight almost half a million iPhones. The situation could be similar with the Watch, and considering the value of such cargo, the shipping price is acceptable.
Licence
Some technology or intellectual property is licensed. In the grand total, all the fees usually fit into the units of a percentage of the sale price, but even that is a black hole for money that goes to someone else instead of to you in large volumes. It is not surprising that Apple started developing its own processors and other components.
Complaints and returns
A certain percentage of every product will always show a defect sooner or later. If it's still under warranty, you'll get a new one, or one that's been returned and had all the covers replaced. Even that return costs Apple money because they have to use new covers that someone has to replace and repackage in a new box.
Packaging and accessories
Ever since the first Macintosh, Apple has taken care of the packaging of its products. Cardboard consumption for millions of Watch boxes per year is not small. Apple even bought it recently 146 square kilometers of forest, although the main reason is rather the iPhone.
If we omit the strap from the accessories, which can be considered a component of the watch, you will also find a charger in the package. You might think that someone will make it here in China for a dollar, which is certainly true. However, such a charger likes to burn, which is why Apple supplies chargers with higher quality components.
So how much?
After taking into account the factors mentioned above, the Watch Sport 42mm could cost Apple $225. At least initially it will be like that, later the production cost could drop somewhere to $185. However, this is still only an estimate and may be "next to the fir tree". According to Luca Maestri, Apple's chief financial officer, net profit from the Watch in the first quarter should be less than 40%.
