iPod Shuffle: the tiny device with the huge profits

BusinessWeek is reporting that Apple’s Shuffle 3G – retail price $79.99 – is made up of parts costing just $21.77.

Those costs, which include the headphones and packaging, represent just 28% of the retail price, meaning the tiny device likely has a huge profit margin. To put things into context, the components of the first iPod touch cost 49% of the retail price, while those used in the 3G iPod nano were around 40%.

Perhaps surprisingly given the low costs, the key components come from a big-name firm. Samsung provides both the main chip (at $5.98) and the flash memory ($10). The power comes from a lithium battery costing $1.20 which research firm iSuppli says is the smallest it’s ever seen.

Of course, there are other costs involved in producing a device such as research, staff wages and distribution. Apple says its overall gross margin on products is 34.7%. If that same margin applies to the Shuffle it will be taking in just over $20 per unit.

Given the price-to-cost ratio, you may be wondering why nobody has yet produced a ‘clone’ version which is considerably cheaper than the Shuffle 3G, but still gives the makers a healthy profit. PMP Today notes that though the components are cheap, the sheer task of fitting such small parts together requires a technology which is beyond the budgets of most knock-off firms.