Apple Watch costs 4 times more to buy than it costs to make
A new report from business analyst IHS says that Apple is marking up its new Apple Watch significantly more than it has for other products.
IHS broke down the wearable's lowest-end Sport model piece by piece and factored out what every part costs, from the OLED touchscreen to the extra band and carrying case that come in the box -- and the box, too. Add it all up and it comes to $81.20. Throw in the cost of production, and that rises to $83.70.
The Apple Watch Sport goes for $349 at retail.
Compared to other Apple products IHS has looked at, such as the iPhone 6, the hardware costs for the Watch make up a smaller proportion of the retail price -- 24 percent versus a range of 29 to 38 percent.
"If we look at that same ratio for other products, it can go a lot greater than that," Kevin Keller, senior principal analyst at IHS Technology, told CBS News. "There might be some that are very low margin and some that are a lot higher."
Indeed, Apple contends this is a low-margin product. That assessment could reflect the costs associated with developing new software and licensing intellectual property, which IHS did not include in its analysis. "There are a lot of functions and apps in this device," Keller said. "That's where Apple is losing their margin. Those costs, at start, will be particularly high."
"It is fairly typical for a first-generation product rollout to have a higher retail price versus hardware cost," Keller said in a statement Thursday. "While retail prices always tend to decrease over time, the ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple's bottom line if sales match the interest the Apple Watch has generated."
The majority of the money spent on parts -- about $20 -- goes to the watch face, which comprises an OLED display from LG and the "Force Touch" module from TPK Slim GG that registers the pressure of your touch. Half of that amount went to the processor; and accessories including an extra watchband and an adapter for the wireless battery charger clocked in at $16.50.
Keller noted that, while Apple has made a lot of noise over elements such as a pulse oximeter that reads oxygen levels, the Force Touch sensor (which is also in the new MacBook) and the "taptic" engine (which can, for example tap your wrist to remind you it's time to stand, and which has been blamed in part for immediate shipping delays), "none are necessarily revelatory."
Rather, he said, "It is noteworthy that many features are appearing for the first time -- in combination -- in one device. It could be a bellwether for other future Apple products."
IHS did not perform its "teardown" analysis on the more expensive stainless steel model, or the $10,000-to-$17,000 Apple Watch Edition, for which Apple developed a new 18-karat gold alloy.