Manufacturing the Ipod Shuffle: How Apple Produces Great Products at Great Prices

BusinessWeeks' Technology section ran an article this month, Deconstructing Apple's Tiny Ipod Shuffle (h/t Supply Excellence), that takes a shot at explaining how Apple has managed to create its latest, buttonless MP3 dynamo.  Based on data supplied by ISuppli, a company which opens up consumer electronics products and estimates the cost of components (not including costs associated with design, software, manufacturing, and shipping, the hard cost of the latest Shuffle is estimated at $21.77, or 28% of retail price ($79).  Some interesting points:

• Apple's mp3 player competitor, Samsung, who makes semiconductors, supplies Apple with some of their most important and highest cost components: the main application chip and flash memory.
• The lithium ion battery is the smallest which iSuppli analysts have ever seen and the passive components, resistors and capacitors, are exceptionally small–indicating Apple's use of cutting edge components across the board.
• Except for the power switch, there are no actual buttons on the Shuffle.  All volume and track controls have been moved to the headphones cord.

In my mind, these all add up to what Apple does a wonderful job of in their handhelds: making great, cutting-edge products at prices that the masses are willing to pay.  Pretty simple.  One of the resources they've developed which I think allows them to accomplish this is their intimate understanding of their customers.  Understanding that the forfeiture of button controls on the device itself, to reduce cost/size, would be acceptable to consumers, and perhaps even seen as adding the aesthetic of the device, is impressive. "It's almost like six dollars worth of flash memory tied to some flash
and a battery and not much else," Rassweiler says (iSuppli's analyst). "It's very basic and
downsized."  In a consumer electronics market where devices are usually outfitted to death with features–Apple has achieved excellence in distilling devices down to the necessary, or the few most desired features, while at the same time opening up new form factors and price points that in turn open sales up to new customers. 

Perhaps I am biased, as I am a mac, Iphone, Ipod user.  But, if they're making a substantial profit margin, I believe they've earned it.  When I get a device that works as wonderfully and reliably as my Macbook, I am happy to pay it.