Samsung’s Bill of Materials for 10.1-inch Galaxy Tablet Comes in Lower Than iPad BOM

Samsung’s Galaxy Note 10.1 could realize a better margin than the iPad if target selling prices hold, said a preliminary report by the IHS Teardown Analysis Service. The HSPA+ version of the Samsung tablet has a bill of materials (BOM) of $283 that bumps to $293 with manufacturing costs added, according to IHS, while the Wi-Fi-only version tallies to a $260 BOM. The modem-equipped tablet sells for roughly $640 in the world market, IHS said, and the Wi-Fi model has U.S. retail pricing of $499.

By contrast, a similarly-equipped 16GB iPad carried a $316 BOM when it was released at $499 at retail. Samsung will be able to garner a larger margin on the Galaxy Note 10.1 than Apple did for the iPad “on paper,” IHS said, as it continues to look for “the magic formula for a media tablet that can rival the iPad’s market penetration,” said Andrew Rassweiler, senior director-teardown services for IHS. He contrasted Samsung’s approach to those of Google with the Nexus 7 and Amazon with the Kindle Fire, with both companies relinquishing hardware profit in exchange for “more complex business models involving online services.”

Samsung can be profitable if it leverages technology from the Galaxy Note smartphone to its tablets, Rassweiler said. But Samsung will have to maintain price and avoid price cuts to drive volume, said Rhoda Alexander, director-tablet and monitor research for IHS, since “no Apple rival yet has demonstrated the capability to actually sell in volume at $499.”

Samsung has the ability to counter Apple’s dominance in semiconductor spending by leveraging its internal sources of supply, Rassweiler noted. Samsung can control a large percentage of the components that go into its final products, he said, which allows the company to “keep costs down while delivering competitive differentiation.” Samsung supplies the memory -- flash and DRAM -- as well as the core processor, battery and “many other components” inside the Galaxy tablet, he said, and by using cross-platform components, Samsung can “better leverage pricing with outside suppliers, and further reduce the incremental cost of developing other devices,” Rassweiler said.

The Galaxy Note 10.1 uses a quad-core Samsung Exynos processor, the same found in the Samsung Galaxy S III handset, Rassweiler said. The new-generation quad-core processor should make a “tangible performance improvement, and will be the main upgrade driver for many consumers,” he said. The Samsung-supplied battery pack features higher than average energy density for a Li-Polymer battery pack, IHS said.

Although the Note 10.1 doesn’t break significant new ground in technology, its hybrid touch screen offers the convenience of hybrid input methods, IHS said. In addition to conventional capacitive touch sensing, users can write on the display using a passive Wacom digitizer pen that doesn’t require a battery, power source or cords, Rassweiler noted.

BOM costs don’t include expenses such as software and development, which could produce a “massive margin for Apple” and a “somewhat smaller” one for Samsung, IHS said. Recent court documents surfacing from the patent battles between Apple and Samsung show that Apple’s gross margins for the iPad “are not nearly as high as those for the iPhone.” Based on IHS BOM estimates and projected retail prices, “Samsung may be able to yield slightly better margins per unit than Apple” on the Galaxy 10.1, it said.

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While a federal jury in San Jose, Calif., deliberates over patent infringement claims between Samsung and Apple, a South Korea court on Friday delivered a split decision on lawsuits brought there covering mobile computing patents. According to The Wall Street Journal, a three-judge panel in Seoul Central District Court in Korea said Apple infringed two Samsung technology patents, while Samsung violated one of Apple’s patents. The court awarded small damages to both companies and said they must halt sales of the infringing products in South Korea, according to the article. Samsung launched the case in South Korea, along with several other countries, in response to the Apple lawsuit brought against Samsung in the U.S. last year, and Apple countersued in South Korea, it said.