Apple (AAPL) can build its low-end iPad for as little as $239 ,according to industry research operation iSuppli. The most expensive version of the tablet, the 64GB product with 3G, costs $346 to build.
The numbers mean that Apple could drop the price of the iPad quickly if demand is low. It will make $483 per unit on the high-end machine in the product line, at the prices it plans to charge when the iPad launches.
The low-cost of production of the iPad may be essential to Apple’s ability to create demand for the product. A recent study by Retrevo indicated that “People who are interested in the device but would not buy one rose from 26% right after Jobs announcement to 52% in the period of the study which was between January 27 and February 3rd.”
It is standard procedure for consumer electronics companies to drop prices over the life cycle of a product. As production rises, the cost of goods for most devices drops. After early adopters buy new devices, lower retail prices become necessary to bring in main stream consumers.
Apple has largely avoided the price reduction cycle. The Mac is still the most expensive computer on the market when matched feature-for-feature with similar PCs. The iPhone is one of the most expensive handsets on the market.
But, the iPad has to compete with the Amazon (AMZN) Kindle and tablet PCs powered by Microsoft (MSFT) Windows. If early sales of the Apple machine are slow, at least Apple can afford bring the price of the iPad closer to that of the Kindle and still make money. That is bad news for Amazon.
Douglas A. McIntyre
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