Apple Sacrifices HomePod’s Profit Margin To Out Run Rivals

HomePod Smart SpeakerScreenShot Source:

The Apple HomePod costs around $216 to manufacture, according to an analysis by TechInsights (via Bloomberg). Since the HomePod is priced at $349, it gives Apple a profit margin of 38%. This means, the company earns comparatively thinner profit margins on its smart speaker when compared to other products like the Apple Watch and iPhone.

“Apple is compressing their margins a bit, wanting to go big or go home,” said TechInsights manager, Al Cowsky. Rivals, Google Home and Amazon Echo generate a profit of around 66% and 56% respectively, but offer a comparatively lower quality of audio, notes Bloomberg.

A teardown of the Apple HomePod reveals that the components such as tweeters, single woofers, microphones and power management hardware cost somewhere around $58. The OLED panel costs somewhere around $60, while Apple’s A8 chip costs around $25.50, according to TechInsights. Other unmentioned components pan out to around $25. Manufacturing, testing and packaging add $17.50 to the final cost, the firm estimates.

Apple can afford to squeeze the margin for its HomePod, given the fact that it earns hefty margins on iPhones. According to a previous teardown by Insights, a 64GB iPhone X costs around $357.50, giving Apple a 64% margin on the $999 handset, while the mid-tier iPhone 8 gives a margin of 59%.

It must be noted that these are all just estimates, and should be taken with a pinch of salt. In 2015, Tim Cook himself commented on these guesses, saying he has “never seen one that is anywhere close to being accurate.”

When it comes to sound quality though, the HomePod shines brighter than its counterparts. However, Siri lacks the capability that Amazon Echo and Google Assistant have. Also, the HomePod is made for the ardent Apple device lovers and connects smoothly with other Apple devices. The HomePod requires the user to have an iOS device for the initial set up process along with an Apple Music subscription to play the music.

Compared to both Amazon Echo and Google Home, Apple’s speaker is a lot bigger. The speaker is available in black and white with a small glossy touch-sensitive disc on the housing light-up, plus and minus buttons along with the covered up center display that lightens up to indicate that Siri is listening. The speaker is covered in mesh fabric with a hidden rubber foot beneath the device.

Separately, the iFixit teardown gave Apple HomePod a score of 1 (on the scale of 10) for the reparability factor. According to iFixit, it takes a total of 19 steps to dismantle the speaker, suggesting that repairing the speaker is not an easy task. An out-of-warranty repair cost for the HomePod would cost around $279 in the U.S., or about 80% of the price of a brand new speaker. iFixit, however, believes that the HomePod is built like a “tank” and is extremely durable.

Meanwhile, there are reports suggesting that Apple’s smart speaker can mar wooden surfaces, leaving a white mark on the surface where they are placed. Apple was quick to acknowledge it, and suggests users place it on a different platform.

“It is not unusual for any speaker with a vibration-dampening silicone base to leave mild marks when placed on some wooden surfaces,” Apple said on its help page.

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at [email protected]

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