A note on iPad Mini pricing

The iPad Mini, as widely leaked as the iPhone 5, had no surprises except for the price: $329 base versus $200 for the Kindle Fire HD and Nexus 7.


What should we make of the price? Both Google and Amazon have explicitly said that their $200 tablets are sold at cost. Apple, of course, makes its money from selling hardware rather than advertising or ecommerce (iTunes and the App Store are run at break-even). Applying the ~25%* gross margin that Apple makes on the current iPads to the $329 iPad Mini would imply a COGS of $247, which seems reasonable to account for the higher build quality – 30% is also quite possible, giving a COGS of $230. That's the relevant number to compare with Amazon and Google's $200. 

In other words, Apple has made a slightly better piece of hardware for $30-$50 more – but then added a margin. 

*Apple disclosed a gross margin of 23%-32% on US iPad sales in the Samsung patent lawsuit.