Samsung dominates third-generation iPod Shuffle design

21 April 2009

With Samsung Electronics supplying the memory chip and the controller for the latest iPod Shuffle, the Korean semiconductor giant dominates the design, accounting for 57.6% of the $20.81 Bill of Materials (BOM), according to iSuppli's Teardown Analysis service.

"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," says Andrew Rassweiler, Director and Principal Analyst of teardown services for iSuppli.

In fact, iSuppli say that the Shuffle has always been the most spartan member of Apple's iPod line, with previous models lacking a user feedback mechanism, such as 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.

"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 iSuppli's 2007 teardown. The third-generation model also is smaller, at only 10.5mm thick, 41.5mm long, and 27.3mm wide, versus the previous version, which measured 7.8mm x 45.2mm x 17.5mm.

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, such as the cost of intellectual property, royalties and licensing fees 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," said Rassweiler.

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% in 2009, but are expected to rebound in 2010 with 2% 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 of consumer products for iSuppli.

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."

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