Thursday, June 28, 2007

iPod Teardown: Who Really Makes It?

Turn over your iPod and you'll see that it's "assembled in China." But that doesn’t mean that most of the profits or revenue go there. In fact, only about $2 (less than 1%) of the $299 retail price of a 30GB iPod goes to China (see chart above, click to enlarge), and more than half ($163) goes to American companies and workers, according to a recent study funded by the Sloan Foundation, using "teardown" data from Portelligent.

For a fee of $1950, the company Portelligent provides a complete "full teardown" report for electronic goods like the iPod, cameras, cell phones, etc. Several recent articles discuss Portelligent's "iPod teardown," which identifies the 451 individual parts in a 30GB iPod, the companies that make the parts, and the countries where the parts are made.

As one would expect, the iPod is a highly globalized product, with parts coming from all over the world: Japan, Phillipines, Taiwan, S. Korea, with finally assembly taking place in China.

See UC-Berkeley economist Hal Varian's
IHT article here, "Who really makes the iPod?" and see Computerworld's article here.

Beyond the interersting factoids about the iPod's worldwide components, this study has some very important trade statistic implications as well.

From Computerworld: "Given that the product is manufactured overseas, one might assume that most of the value goes there. In fact, the brand that creates the product reaps a substantial portion of the returns. And when iPods are shipped to the U.S. for sale here, 55% of the purchase price goes back to U.S.-based firms. How ironic, then, that the federal government attributes most of the iPod’s value to China, boosting the trade deficit when it receives the smallest slice of the pie."

From Professor Hal Varian: "This illustrates the futility of summarizing such a complex manufacturing process by using conventional trade statistics. Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to its bilateral trade deficit with the Chinese."

Bottom Line: Our $250 billion "trade deficit" with China is probably hugely overstated because of misleading trade calculations used by the Dept. of Commerce. If the import value of the iPod is overstated by a factor of 75X, think of all of the other similar products imported from China that are probably also grossly overstated!


At 6/28/2007 11:22 AM, Anonymous Anonymous said...

This $299 retail iPod costs $302 to manufacture. Are you sure you've got the numbers correct?

At 6/28/2007 11:29 AM, Blogger Mark J. Perry said...

Well, I didn't create the chart, but I think it's just due to rounding that the values add up to $302 instead of $299.


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