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Why Apple’s bottom line could do with Apple Watch sales boost

Much-anticipated Apple Watch has the lowest hardware costs compared to retail price of any Apple phone on the market.

The much-anticipated new Apple Watch has the lowest hardware costs compared to retail price of any Apple phone on the market.

The teardown of the Apple Watch Sport by IHS Technology estimates that the actual hardware costs are only about 24 per cent of the manufacturer’s suggested retail price (MSRP).

According to preliminary estimates by IHS and its Teardown Mobile Handsets Intelligence Service, estimated hardware cost to MSRP ratios for other Apple products reviewed by IHS are in the range of 29 to 38 per cent.

The teardown of the Apple Watch Sport 38 mm shows a bill of materials of $US81.20 with the cost of production rising to $US83.70 when the $US2.50 manufacturing expense is added.

At present, the retail price of the Apple Watch Sport 38 mm is $US349.00 with IHS Technology analysis not including logistics, amortised capital expenses, overhead, SG&A, R&D, software, IP licensing and other variables throughout the supply chain such as the EMS provider.

“It is fairly typical for a first-generation product rollout to have a higher retail price versus hardware cost,” says Kevin Keller, senior principal analyst-materials and cost benchmarking services, IHS Technology.

“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.”

New Features and Manufacturing Methods

There are several new features and manufacturing methods used in the Apple Watch Sport, including: a Pulse Oximeter, Force Touch sensor, "Taptic Engine" feedback, encapsulated modular printed circuit board (PCB) assembly and stacked-die integrated circuits (IC).

“While these features have been promoted by Apple and none are necessarily revelatory,” Keller adds.

“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.”

For example, the Taptic Engine built into the Apple Watch, and integrated with the loudspeaker, contains a linear actuator which provides haptic feedback and vibrations.

“We found that the device consumes a substantial amount of space inside the watch, and we would expect further miniaturisation of this function in future iterations of the product,” Keller adds.

For Keller, the preliminary results of the teardown do not show any big surprises in the IC content as all of the manufacturers identified so far were expected.

The Apple Watch NAND memory is a Toshiba Flash 8GB and DRAM is a Micron SDRAM 512MB. Broadcom, STMicro, Maxim, Analog Devices and NXP are used for connectivity and interface.

But as Keller points out, one noteworthy change is a shift from Invensense to STMicro for the accelerometer/gyroscope.

“The display is LG’s plastic OLED display and the touchscreen overlay module is a TPK Slim GG utilizing their ‘Force Touch’ technology,” he adds.

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“Force Touch was recently incorporated into the latest MacBook and is expected to be found in the next iPhone generation.”

Apple “Unibody” Tradition Continued

Keller says the fabrication of the enclosure continues the Apple "Unibody" tradition of precision machining from a single block of aluminum.

Apple is now extending this design philosophy into a highly miniaturised realm, mating the legacy of precision watchmaking with Apple’s specialised manufacturing practices.

As with their previous products, Apple has taken fabrication techniques – once typically restricted to low-volume manufacturing and prototyping – and scaled them into a high-volume production environment.

“The encapsulation of the entire printed circuit board assembly into a single monolithic module is especially noteworthy,” Keller adds.

“Whereas many products might have some form of semi-flexible encapsulant applied to the board for protection, shock and vibration purposes, Apple has effectively created one large IC out of the entire assembly.

“This encapsulation is done by encasing the board in the same plastic/epoxy material used for conventional ICs. Indeed, many of the devices found inside the assembly are already encapsulated, effectively creating an IC-within-an-IC affair.”

To provide electromagnetic shielding, Keller says the encapsulated PCB assembly is further treated with a metalised coating deposited over the surface.

“This shielding process is used in place of conventional stamped sheet metal shielding, saving a significant amount of space, as well as cutting down slightly on weight,” he adds.

Potential Boost for Wireless Charging

The Apple Watch is equipped with inductive charging technology and is being shipped with a wireless charger, based on Apple’s own proprietary MagSafe charging technology.

“It has been speculated that the Apple Watch could be compatible with the Wireless Power Consortium’s (WPC) Qi wireless charging specification,” adds Vicky Yussuff, analyst-power supplies and wireless power, IHS.

Recent media reports appear to show the Apple Watch MagSafe charger being used to charge the Moto 360 smart watch which according to Yussuff, “would suggest that Apple’s charger is Qi-compatible.”

“Apple has not been announced as a member of the WPC or even a supporter of the consortium, so it is unlikely that they have produced a 'certified' Qi product,” she adds.

“However, the Qi specification is an open standard meaning it is still possible for Apple to build products which are compatible to the specification. This could be the case with the Apple Watch MagSafe charger.”

Although it cannot be verified if both the Moto 360 smartwatch and Magsafe wireless charger used in the video were both un-modified ‘off the shelf’ products, Yussuff believes this could potentially be another boost for the wireless charging industry looking to increase interoperability.

In conclusion, Yussuff says the Apple Watch battery appears to be somewhat simpler to replace than the batteries in many other Apple products.

“As long as the display can be carefully removed, the battery is attached with a simple snap-on connector,” she adds.