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Apple Is Ready to Slash iPad Prices

Apple has faced pricing pressures in the past, in the form of declining average net revenues for Macs and the sudden $200 drop in the iPhone price made just a few months after the product was introduced. But the tablet market may be Apple's toughest challenge yet, and Steve Jobs and company already look nervous. However, if it comes to getting more aggressive on price, the iPad will have wiggle-room.

According to electronics analyst firm iSuppli, which looked at announced parts as well as its previous iPhone teardowns, the manufacturing cost for the iPad is likely to run from just over $229 (for the 16GB Wi-Fi only model) to $346 for an iPad (with 64GB of storage and 3G capability). Although the figure doesn't include per-unit costs for software licenses and royalties, the middle-of-the-pack offering -- and iPad with 32GB of storage and 3G -- could generate hardware margins of more than $441 if the estimate is accurate. (Licenses and royalties won't eat the bulk of that number, given how the computer industry works.) Even on low-end iPads, there would be almost $270 left.

Supposedly, Apple is prepared to drop prices if the iPad fails to take off. Given the mixed reception te iPad has received, that may be necessary because Jobs failed to deliver a clear vision of why the product is a "must-have." The door is open for more strenuous competition from major PC vendors, and Apple may have a hard time commanding its usual price premium from consumers. Then there is the Financial Times report that Apple will test a $1 price for TV programs, half its usual price. Clearly, Apple is ready to spend money -- or take in less -- to jumpstart iPad sales.

As it true with a number of major vendors, Apple probably gives relatively low discounts to retailers, who would look to add-on sales and payments from wireless carriers for accounts signed for their margin. So the company should be able to take an aggressive pricing stance through retail partners, if necessary.

That doesn't mean Apple will have to take a loss on each iPad sold, or give up on profit. According to the company's public filings, the iPhone generates revenue of more than $650 per unit -- a figure not just far above the estimated manufacturing cost of $173 for the iPhone 3G, but exceeding the actual list price (thanks to carrier subsidies, accessory sales, and royalties from third parties). Why should things be any different for the iPad?

Apple's working again with AT&T, its wireless partner from the start, rather than Verizon. It's quite possible that AT&T again had to kick-in money for each customer who signs up for iPad wireless service, to keep its rival out of the picture. So even if Apple has to further cut prices on the iPad, Jobs & Co. still stand to make a bundle.

Photo: timparkinson