Apple iPad mini was supposed to be a cost-effective offering from Apple on the market of media tablets. According to teardown analysis of the device, the new product does not include expensive modern components and therefore is relatively inexpensive to make. Not surprising that Apple is making quite some money on every iPad mini it sells.

The base model of Apple’s new iPad mini with Wi-Fi only and 16GB of NAND flash memory, carries a bill of materials (BOM) of $188.00, according to a preliminary estimate from the IHS iSuppli teardown analysis service. When the $10.00 manufacturing expense is added in, the total cost to manufacture the iPad mini rises to $198. The teardown assessment is preliminary and accounts only for hardware and manufacturing costs, thus does not include additional expenses such as software, licensing, royalties or other expenditures.

“With the iPad mini, Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products. Apple’s strategy entails offering differentiated hardware that justifies higher price tags than comparable products. This differs markedly from Amazon’s 7” Kindle Fire HD and Google’s Nexus 7 tablets, both of which are essentially low-margin or no-margin giveaways at a $199 retail price. Apple makes healthy margins on its hardware, while Amazon and Google employ different strategies with their 7” tablets,” said Andrew Rassweiler, senior principal analyst of teardown services for IHS.

With the iPad mini, Apple continues to garner even greater profits from sales of the higher-end tablet models that have greater amounts of flash memory. Because Apple provides consumers no option to expand the iPad mini’s storage capacity with any sort of removable memory card, the only way users can upgrade the amount of flash available on the product is to buy the higher-end 32GB and 64GB models. These higher-end models – with or without 4G wireless capabilities – are priced at $100 intervals, at $429 and $529. Since the incremental cost of the additional NAND flash memory to Apple is only $9.60 for the additional 16GB of memory and $19.20 for an additional 32GB of memory, Apple’s profits increase rapidly with the purchase of models with more memory.

The individual iPad mini dissected by IHS included only a Wi-Fi connection, with no 4G/LTE wireless hardware included. Based on the preliminary teardown analysis, the addition of the 4G LTE module hardware would cost approximately $34. This cost excludes essential intellectual property (IP) licensing fees, such as those for CDMA/WCDMA/LTE wireless technology.

The defining feature of the iPad mini is its 7.9” display, larger than comparable 7”-class tablets, whose displays are nearly 1” smaller, at just 7”. The iPad mini employs GF2 multi-touch touchscreen technology, which allows the touchscreen module to be thinner than competing tablets. However, the new GF2 technology also makes manufacturing more challenging during initial production by reducing manufacturing yields. The initial cost of the display and touchscreen module is preliminarily estimated at $80, representing a hefty 43% of the total BOM for the low-end iPad mini.

The main display suppliers for the iPad Mini are likely to be LG Display and AU Optronics (AUO) of Taiwan, according to HIS, but some other analysts have pointed out that Samsung Display also supplies displays for the iPad Mini.

With the high price of the display module, Apple needed to reduce expenses in other sections of the iPad mini. The most notable example of cost cutting is in the processor: an A5 chip manufactured with a 32nm process technology by Samsung Semiconductor. The A5 processor costs $13, accounting for only 4% of the total BOM. This compares to $16.50 for the Texas Instruments OMAP processor used in Amazon’s Kindle Fire HD.

Tags: Apple, iPad, iOS, Samsung, LG, SK Hynix, AU Optronics, 32nm