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A better, cheaper nano: Apple’s holiday gift to itself

September 20, 2006, 9:56 AM UTC

I just love folks who enjoy cracking stuff open and seeing how it works – and iSuppli is at it again. The research firm has published the results of a “tear-down” of the iPod nano, which basically means they took the thing apart, spread its guts out on a table, and tallied up the cost of the pieces.

What iSuppli found should send shivers down the spines of competitors like SanDisk, Creative and iRiver, who have already been lapped by the iPod in the audio player race: Apple Computer has figured out how to build the second-generation nano at a lower cost than the first. Since Apple’s positioning the new nano as the must-have gadget of the holiday season, Apple’s efficiency amounts to a big Christmas gift to itself.

The cost of the parts in the $199, 4-gigabyte nano is $72.24, said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli; that’s $17.73 less than the original iPod’s $89.97 bill of materials price tag.

A big reason for the difference? Apple’s getting cozier and cozier with Samsung, the world’s largest producer of flash memory and the supplier of much of the flash storage for the nano. In this latest iteration, Apple has added a Samsung-made system-on-chip that replaces the PortalPlayer innards from the first generation. Apple’s savings from the move: about $2.60 per iPod, or $5.40 rather than $8. Doesn’t sound like much, but when you consider the millions of iPods that sell, and note that every dollar in saved component costs pretty much goes straight to Apple’s bottom line, you start to see the money stacking up in Cupertino.

Interestingly, iSuppli did a teardown of the regular iPod and found that it’s pretty much the same as the pervious version, with the addition of a brighter display. That suggests to me that Apple expects the iPod nano to be the big hero of the holiday season, since its $149 starting price point is right in the sweet spot of what trendy folks will pay on an impulse.