"The design of the
iPod Shuffle is so simple that it’s little more than a chunk of memory with a single-chip media player attached to it," said Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli Corp. And with Samsung Electronics Co, Ltd. supplying both the memory chip and the controller, the Korean semiconductor giant dominates the design, accounting for 57.6 percent of the $20.81 Bill of Materials (BOM) of the new Shuffle, according to the iSuppli
teardown analysis.
The Shuffle has always been the most Spartan member of Apple's iPod line, with previous models lacking a user feedback mechanism, i.e. a display. While the latest version continues this simplistic design theme, the third-generation Shuffle improves on the user interface experience with the implementation of its VoiceOver feature that speaks the name of a song’s title and performer. In all other regards, it is the simplest Shuffle yet.
"Apple has managed to take the lowest end of the iPod line and actually further downsize it, while adding features to what had been a virtually featureless device," Rassweiler added. "Beyond the memory and controller, all the other components basically provide power, interface and interconnect functions for the memory and media-player chips."
The latest version of the iPod Shuffle contains 171 distinct parts, mostly inexpensive and tiny passive components, down from 213 components from the
second-generation version, based on 2007 iSuppli teardown. The third-generation model also is smaller, at only 10.5mm thick by 41.5mm long by 27.3mm wide, versus the previous version, which measured 7.8mm by 45.2mm by 17.5mm.
The BOM Remains the Same
When manufacturing and battery costs are added in, the third-generation iPod came in at a combined BOM/materials cost of $21.77. This is virtually unchanged from the $21.80 for the second-generation iPod Shuffle, based on 2007 pricing from iSuppli’s teardown from two years ago.
However, the new version includes 4Gbytes of
NAND flash memory, while the first edition of the second-generation model included only 1Gbyte. The
price of flash has fallen so precipitously that 4GBytes of NAND now cost only $6.00, compared to $6.98 for 1GByte two years ago.
The total materials and manufacturing costs reported in iSuppli’s teardown analysis of the iPod Shuffle reflect only the direct materials, manufacturing and basic test costs. Not included in this analysis are costs above and beyond the material manufacturing of the core device itself, i.e. the cost of intellectual property, royalties and licensing fees—those not already included into the per component price—software, software loading and test, shipping, logistics marketing and other channel costs. These costs are not included because teardowns cannot reveal this type of information.
However, even when these costs are factored in, Apple is achieving an impressive profit margin with the Shuffle.
"At a retail price of $79, the Shuffle has to be one of the most profitable Apple products in its entire line, on a percentage basis," Rassweiler said.
MP3/PMP Market Sours
The introduction of the third-generation iPod Shuffle comes at a time when the going is getting tougher in the mature
MP3/Personal Media Player (PMP) market. Like most consumer electronics products, MP3/PMP shipments are set to decline slightly, falling 5.4 percent in 2009, but are expected to rebound in 2010 with 2 percent growth, iSuppli predicts.
With the declines in shipments spurred by consumers’ dwindling disposable incomes during the global economic downturn, the new Shuffle may help maintain Apple’s already dominant position in the global MP3/PMP market.
"The new iPod Shuffle addresses some of the prior generation’s functional limitations while keeping the price well under the $100 threshold where cost-conscious consumers often think twice about purchasing a non-essential item," said Sheri Greenspan, senior analyst, consumer products, for iSuppli.
Shuffle Finds Its Voice
One key to the low component cost of the Shuffle is its VoiceOver 2 technology.
"The Shuffle’s VoiceOver does not actually possess text-to-speech using silicon processing, but rather iTunes software generates the vocal files using software, and pre-records them in the form of audio files," Rassweiler observed. "This approach is cheaper and more flexible than trying to incorporate new silicon-level voice synthesis features, especially when the gigabytes of flash to record the song information come so cheap.”
About iSuppli Teardown Analysis
Why do the world's top technology companies rely on iSuppli for their teardown needs? Because the iSuppli teardown analysis team is the most experienced in the industry and can draw upon a vast library of data and expertise that only a broad-line market-research firm can provide.
The iSuppli team leverages the expertise of more than 25 experts in various fields, all of whom have extensive electronics industry backgrounds and far-reaching expertise in equipment and component analysis, to develop a comprehensive understanding of electronic designs and costs.
iSuppli has been conducting teardowns for six years, but the company’s background in this area goes back much further, with members of our management team having established and participated in teardown programs at another research firm starting in the mid 1990s.
The iSuppli Teardown Analysis Service has dissected more than 1,500 electronic products, from mobile phones of very variety, to personal computers, to set-top boxes, to video-game consoles to high-definition televisions. The team engages in rigorous teardowns that enable a complete identification and accounting of all components found in electronic equipment.
The teardown team's extensive experience in dissecting electronic equipment allows it to make sophisticated observations regarding product design and component selection based on manufacturer, region of production, design approach and other factors.
Pricing for components found inside of equipment is determined using the iSuppli
Component Price Tracker (CPT), which provides detailed information on costs for more than 350 components commonly found in electronic equipment, allowing iSuppli to develop highly accurate BOM estimates.
Component prices are subject to significant changes over time due to manufacturing learning-curve processes, as well as inventory and supply-and-demand issues. The CPT provides forecasts and updates of pricing movements that have unparalleled accuracy.