Friday, March 4, 2011

Motorola Xoom costs $360 to build but sells for $799

Motorola Xoom TabletOne of Apple's best management practices is sourcing their materials at the cheapest rate by buying in huge quantities. This is basic commerce as we all know. Every organisation tries to achieve economies of scale. This in turn helps them get a competitive advantage over their rivals. IHS iSuppli estimates the bill of materials of the Motorola Xoom at $360, while Apple's first-gen iPad (32 GB/3G) was estimated at roughly $320. The estimated difference of $40 turns into $70 in the store, as the Xoom sells for $799 and the comparable iPad for $729. With a two-year 3G commitment, the Xoom sells for $599 at Verizon, while there is no such discount currently available for the iPad. 
"With its features and functionality, the Xoom is clearly designed to go head-to-head against the iPad 3G," Wayne Lam, an analyst with IHS iSuppli, wrote in a March 1 research note. "In pursuing that design philosophy, Motorola has closely lined up the Xoom's component costs with that of the iPad's, especially where it counts: in the touch screen, the display and the cellular radio." We are now waiting for a first cost estimate for the ipad 2, which should, despite the additions of cameras go down, due to Apple's long term material supply contracts as well as obvious integration improvements.

Apple's cost advantages are substantial pressure for its rivals. Motorola, Samsung, RIM and others will have to find ways to compete with Apple on a cost level - not just on a feature level - as tablets move more and more into the mainstream.

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