iPad Parts May Yield Tidy Profits for Apple

Apple’s recently launched iPad could yield a tidy profit for the company thanks to its relatively low cost for parts, if an analysis of the components proves accurate.

According to BroadPoint AmTech analyst Brian Marshall, the low-end $499 version of the new tablet costs about $270 in materials and manufacturing.

Marshall concluded the most expensive piece in the iPad’s bill of materials (BOM) is the 9.7-inch touch-sensitive display, which he put at $100. Apple’s (NASDAQ: AAPL) most profitable item, meanwhile, is the 3G radio: Models carrying the unit cost $130 more than those without, while it only costs the company $16.

The total BOM for the 16GB WiFi-only iPad is $270.50, plus a $10 line item dedicated to manufacturing and another $20 set aside for warranty service costs. The 16GB of memory and the aluminum case are estimated to cost about $25 each, while the Apple A4 processor chip is put at $15.

Profitability appears to scale up as the lineup increases in capacity, since the 32GB and 64GB iPads only see their costs rise another $25.50 and $76.50, respectively, but their suggested prices go up $100 and $200.

The 3G iPad provides a bigger margin at every price point than does the same memory configuration in a WiFi-only device. The 32GB, $599 WiFi-only iPad costs Apple $316, yielding a margin of 48.1 percent. With a 64GB device, the iPad costs $332 but has a $729 price tag, giving Apple a margin of 55.1 percent.

Marshall is estimating, of course. A clearer idea of Apple’s real costs won’t be known until the device arrives and can be dissected by analysts in the popular “teardown” ritual. But if his estimates are anywhere near accurate, it’s clear that the iPad will yield tidy profits for Apple.

As a result, Marshall is raising his estimates for Apple unit sales and earnings.

“It was not until we actually used the iPad for about 15 minutes were we convinced this will be another grand slam product for Apple,” Marshall wrote in his research note. “The ergonomics and the ‘media’ experience of the device (i.e. Internet browsing, e-reading and watching videos on the 9.7-inch screen) stood out the most to us.”

He had originally estimated that Apple would sell 2.2 million units in 2010, but now believes sales will be an order of magnitude higher, with a corresponding impact on Apple’s earnings. If Apple sells seven million units, calendar year earnings per share (EPS) would rise from $12 to more than $13.

Marshall has Apple rated a “buy” with a target price on its stock of $264 — but Apple is a long way from that level. In the post-iPad launch hangover, Apple’s stock has been pummeled. It peaked at $213 on Tuesday, the day before the announcement, but at press time trades at $194, losing ground all last week following the announcement.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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