Flash MP3 player 2GB (and 4GB model available) with 1.5 Inch diagonal 65K color TFT screen (132 x 176 - relatively high resolution) with built-in Li-Ion battery and touch sensitive "clickwheel" interface. Very small form factor with the unmistakable Apple aesthetic and features.
The Apple iPod Nano is clearly the IT product right now in the MP3 player space. Apple gets ahead of the game once again with a product that is clearly the best MP3 player on the market right now. Furthermore, the iPod Nano is strategically placed to be a category killer, wiping out the low-end HDD player market (which Apple owned in the first place), and paving the way to ultimately replace HDD-based MP3 players in the coming years.
But Apple's product will also wipe out the teeming Petri dish of Chinese, Korean and other competitors that has been gnawing away at the iPod Shuffle's space with a plethora of ODM produced LCD-sporting, cheap-looking no-name players.
To make this product even more interesting, when you delve under the hood and hear the backstories on sourcing issues - it also appears that the iPod Nano is at least as profitable (if not more) than other Apple products from a hardware-only perspective. Per this analysis, the theory that Apple are giving away hardware to make it up on the iTunes front sounds exaggerated if not baseless.
The iPod Nano is so "big" in terms of market impact that it is affecting the orbit of pricing in the Flash industry as a whole. More on the subject of the Nano and flash can be found within this teardown, however in summary, Isuppli expect a significant increase in Mbit shipments in 2005 and 2006 due in large part to the Nano, with subsequent accelerated ASP erosion in this space.
The iPod Nano was released in September (7th). The Nano release had not been previously announced and it's release was a sort-of guerilla marketing ambush. The product's release and subsequent hype completely eclipsed other products that were released at our around the same time frame (Hello ROKR). The Dell Ditty, too, for example, doesn't seem to be getting much attention, but is not unique, and appears to be one of those ODM devices flooding the market.
The Nano is by our estimation, an extremely hot product being produced in volumes rivaled only by some Nokia cell phones that we have analyzed. Apple made their release by far early enough in the year to catch the entire holiday season comfortably and even some straggling back to schoolers. In fact we estimate a sales volume of approximately 7.5 to 8.5 Million sold by year end, and another 18 Million in 2006 (8 - 9 Million in the first 3 quarters with the balance in Q4). Interviews with at least one major component supplier corroborate our volume estimates.
Market shares / Sector Performance
The MP3 Player market is one the fastest growing segments within Consumer Electronics. Factory revenues and shipments in 2005 will reach $7.3 billion and 61 million units respectively. By 2009 those figures will essentially double $12.0 billion to 132 million units. The MP3 Player market consists of two main segments: Flash based players and Hard Disk Drive (HDD) based players. They will account for 68% and 32% of 2005 units shipments respectively. Although a latecomer to the flash segment, Apple now dominates both segments due to the strength of its iPod brand and its iTunes online music store. It entered and gained leadership within flash during 2005 with the iPod shuffle (January) and the iPod nano (September). Apple's overall market share will near 50% by the end of 2005 and likely reach 55% during 2006. Other key competitors include consumer electronics giants (Sony, Samsung) as well as smaller makers who established the market prior to Apple's entry (Creative, iRiver). One of these latter companies, Rio, recently exited the market in Q3, a possible signal for more consolidation in the near future. During the last year most Apple competitors, both for players and for content (Napster, Rhapsody, Yahoo, MSN) have united through Microsoft's playsforsure brand initiative.
Semiconductors for MP3 Players will also grow from $3.4 billion in 2005 to $6.4 in 2009. Key components include flash memory for storage and ASIC/ASSP/DSP based system-on-chip (SoC) controllers. Key flash vendors include Samsung, Toshiba, and Hynix. The two key controller companies are SigmaTel, which has historically dominated the flash segment, and PortalPlayer, which has focused on the HDD segment. However, the iPod nano, which uses a PortalPlayer controller for a flash player for the first time, marks a new level of competition in which the two companies are seeking design within both segments. SigmaTel and PortalPlayer are also facing increase competition from Texas Instruments and China based Actions Semiconductor.
Function / Performance
Performance testing was not performed on the iPod Nano.
For customers who are buying this anaysis and are confused about our initial press-releases with preliminary chip and BOM estimates totaling $90.18, you may be confused or dismayed at the fact that this final analysis has a slightly different total. The press figures were preliminary, not final, and during the last 10 days since that initial analysis, certain components were more completely identified, some items have been added (accessories, packaging and literature, and some parts may have previously been unidentified are now identified with manufacturer's names and part numbers, etc.
Furthermore, as we conducted ongoing interviews in industry we may have changed our initial estimates on some items (such as the display, which we now know to be much less expensive than our initial estimate). We strive to maintain the highest standards and provide the best information available at all times as it becomes known to us.
Memory - The Main Cost Driver - Of course in any MP3 player, memory is expected to represent the largest single BOM cost driver, and this device is no exception. The 2GBs of NAND flash in this device are estimated at $54 - representing well over 50% of the entire cost of materials for this bill.
"2GB of NAND Flash for $54USD!?", you say? First of all, as background, we use a variety of sources of information ranging from internal analysts, to interviews with manufacturers and buyers, as well as internal modeling and other forms of pricing "triangulation" to arrive at our final estimates reported for most component costs. Memory is however more "market information" driven and no modeling is used. We always take the best and most current information available at the time of the teardown to arrive at our estimates.
In the case of the iPod Nano it should be noted that we believe a current "market price" estimate of this memory, to other large customers, would be on the order of approximately $90 at the time of this teardown.
However, we have factored in the following exceptional information:
a) Most NAND flash supplied to Apple from Samsung is MLC type, not SLC, and this has approximately 30% lower cost as compared with SLC memory.
b) We also know that Samsung has allocated a very large share of total production to support Apple's production of the Nano (iSuppli estimated 40% of total capacity).
c) Toshiba is a dual-sourced competitor in at least the 2GB Nano's memory slot, and Samsung has a strategic interest in maximizing it's share at Apple, it was assumed that Samsung would be offering possibly significant discounts to maintain the lion's share of memory sales at Apple. (40% of capacity!)
d) We believe it is Apple and Samsung's allied strategy to make a commercial assault on HDD-based players at the low end of the storage spectrum, and it is in both parties interest to have a tight alliance that will allow these players to have an edge in the market to displace not just HDD-based players but other manufacturer's memory-based players.
e) Also, it is very important to note that we have analyzed several other recent devices from Apple, and we have established an idea of the order of magnitude for "normal" product margins at Apple. So we also used our internal estimates of overall Apple margin as guidance for the overall bill of materials and especially memory pricing, which represents, of course the largest single cost driver within the Nano. This final figure was an important element in our analysis.
f) Refer to any or all of our in-depth DRAM research including the Market Watch article releasing October 3, 2005 entitled "Apple's iPod nano shakes up flash demand and intensifies MP3 competition"".the Nano is affecting the entire market with it's planetary pricing gravity.
Having said all of this we have seen some outlandish estimates from credible, publicized sources in the investment community estimating the 2GB content as low as $35. We stand by our "conservative" estimate.
Memory - Samsung - NAND Flash 2GB$54
1.5 Inch Diagonal, 132 X 176 Pixel, 65K Color TFT LCD Module ~$9
(Soucres are Optrex and Sharp (Dual-Sourced)
Unknown which supplier used here)
PortalPlayer PP5021C DSP - Digital Media Management~$6
Samsung SDRAM - Mobile, 32MB ~$4
Silicon Storage Technology ATA Flash Disk Controller~$2
Philips Semiconductor Power Management Chip <$2
Amperex Technology Limited Battery - Li-Ion <$2
Subtotal of Main Cost Drivers~$78
Total Materials Costs ~$94
Materials and Manufacturing* ~$104
* - The total materials and manufacturing costs reported in this analysis reflect only the direct materials cost (from component vendors and assorted EMS providers), manufacturing and test. Not included in this analysis are costs above and beyond the manufacture of the core device itself - cost of shipping, logistics, marketing and other channel costs including not only the OEM's margin, but that of other resellers. Our cost analysis is meant to focus on those costs incurred in the manufacture of the core device (the player, packaging, and accessories in this case) itself.
Country of Origin / EMS provider
This iPod Nano was assembled in China, per markings on the packaging, however we are not certain if Inventec (the main EMS provider for other vintages of iPod) or Foxconn is the EMS provider. In any case, Foxconn is, as with the Mac Mini (produced by Foxconn in China) definitely a component supplier for the iPod Nano.
Foxconn is one of the world's most prominent contract manufacturers with a high degree of vertical integration not present with many of the other EMS suppliers. In this analysis although we have applied not only China labor rates to derive our manufacturing costs, if one were to assume that Foxconn were manufacturing the Ipod Nano, it would be safe to assume that Foxconn also gets more favorable pricing (than the market at large) for those products that they produce internally (enclosures, plastic and metal components), as well as PCBs (rigid and flex) and some connectors. We cannot firmly factor that in here and chosen not to - but this could drive certain materials costs marginally lower.
Design for Manufacturing / Complexity
The main PCB is, as the iPod Shuffle and Mac Mini were before it, a fairly dense design. There are a lot of components in a very small amount of surface area. There's no wasted space here. This can make automated manufacturing slightly more challenging and costly, however beyond the main PCB, the remainder of hand assembly is fairly minimal and due to the modular nature of the design, comes together in relatively few hand assembly steps reducing the man-time for production to a minimum. It should be noted however, that for such a small device we have rarely seen so many discrete pieces of insulation, padding and conductive cloth which does offset this to a certain extent. And, as Chinese labor rates are famously low and even when loaded will produce a rather anemic figure in the grand total.
While initially we thought that the iPod Nano might be little more, from an electronic design perspective, than a re-spin of the iPod Shuffle main board design with more memory and a display added - but in fact, nothing could be further from the truth - this is a unique design, designed specifically to be it's own design. All of the major Ics (Portal Player vs. Sigmatel for the choice of core processing, the use of a touch sensitive "clickwheel" using the Cypress controller chip, etc.).
Flash - NAND, 1GB, 1G x 8Bits, 3.3V
SDRAM - Mobile, 32MB, 4Mx16Bitx4Banks, 1.8V, 133MHz
Silicon Storage Technology
ATA Flash Disk Controller
LCD Display Unit - 1.5 Inch Diagonal, 132 X 176 Pixel, 65K Color TFT LCD Module
Optrex and Sharp are dual-sourced
Fairly standard size and resolution for the cell phone market
Amperex Technology Limited
Battery - Li-Ion Polymer, 3.7V, 290mAh
Same sourced used for Shuffle battery
Fairly industry standard prismatic cell