Will Apple Get Squeezed by the Mini?

With the iPad Mini expected to be launching Tuesday, KGI Securities analyst Ming-Chi Kuo has estimated that Apple (NASDAQ:AAPL) is spending close to $200 to manufacture one 16GB Wi-Fi unit of the tablet. One of the biggest questions amid all the talk about the rumored device has been regarding the expected pricing structure of the tablet and how aggressive Apple can get without squeezing margins too much. Apple’s main strategy behind launching the new device is said to be to provide a price rival to the new, cheaper tablets from Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN), among others. But while those devices start at $199, not many expect Apple to be willing to go as low.

The analyst estimates that the tablet’s screen, including the display, touch sensor, cover glass, and other hardware, is the single most expensive component at $56.50. He pegs the cost of the logic board at $54 for the Wi-Fi only version and $80 for the 4G LTE-compatible version. Kuo expects Apple to use Qualcomm’s (NASDAQ:QCOM) MDM9615M baseband chip, the same one that is used in the iPhone 5, which costs $24. A $33 casing, a $16.50 five-megapixel rear-facing camera, and a $12 battery complete the parts list, while labor costs are said to be around $7.

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If these costs are compared to the alleged retail prices of the tablet that were leaked from Europe, Apple will see gross profit margins of 35 percent to 58 percent on the device, fairly lower than those of its other products. The third-generation iPad, also a low-profit margin product for the company, brings in margins of between 37 percent to 51 percent, while the iPhone 5 has margins between 68 percent and 72 percent, Apple Insider said.

Kuo calculations of the bill of materials and manufacturing costs are based on rough estimates and not on an actual teardown of the device.

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