The base model of Apple's new iPad Mini with Wi-Fi only and 16G of NAND flash memory carries a bill of materials (BOM) of US$188, according to research firm IHS. When the US$10.00 manufacturing expense is added in, the total cost to manufacture the iPad Mini rises to US$198.00 in terms of hardware and manufacturing costs, but not in terms of additional expenses such as software, licensing, royalties or other expenditures.

Based on the ratio of cost to retail price, IHS has concluded that the iPad Mini is slightly more profitable on a percentage basis than the comparably equipped version of the New iPad when it was released in March 2012.

"With the iPad Mini, Apple is sticking to the premium-brand strategy it has always used for its media tablet and smartphone products," said IHS researcher Andrew Rassweiler. "Apple's strategy entails offering differentiated hardware that justifies higher price tags than comparable products. This differs markedly from Amazon's 7-inch Kindle Fire HD and Google's Nexus 7 tablets, both of which are essentially low-margin or no-margin giveaways at a $199.00 retail price. Apple makes healthy margins on its hardware, while Amazon and Google employ different strategies with their 7-inch tablets."

Amazon's Kindle Fire HD and Google's Nexus 7 have set new consumer pricing expectations for 7-inch media tablets, starting at the US$199 point. These low-priced tablets pose a competitive challenge to Apple's media tablet dominance.

"Amazon and Google want to put tablets in consumers' hands even if it means doing so at a minimal hardware profit, and do so with the intent of making their money from the content users buy, as well as from advertising and paid content they will be exposed to by buying the devices," Rassweiler observed.

With the iPad Mini, Apple continues to garner even greater profits from sales of the high-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 high-end 32G and 64G models of the device.

These high-end models, with or without 4G wireless capabilities, are priced at US$100 intervals, at US$429 and US$529. However, the incremental cost of the additional NAND flash memory to Apple is only US$9.60 for the additional 16G of memory and US$19.20 for an additional 32G of memory. This means that compared to the 16G model, the 32G version of the iPad Mini generates about US$90 in additional profit for Apple for every unit sold. For the 64G model, Apple's profit is about US$171 higher than the 16G version.

The individual iPad Mini dissected by IHS included only a Wi-Fi connection, with no 4G Long Term Evolution (LTE) wireless hardware included. Based on the preliminary teardown analysis, the addition of the 4G LTE module hardware would cost approximately US$34.00. 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-inch display, larger than comparable 7-inch tablets, whose displays are nearly 1-inch smaller at 7-inch, said IHS. 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.

This drives up pricing for the touchscreen module. The initial cost of the display and touchscreen module is preliminarily estimated at US$80.00, 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 of South Korea and AU Optronics (AUO) of Taiwan. LG Display has been supplying panels for the entire iPad line since the launch of the first iPad, and is likely to be the main supplier for the iPad Mini displays, added IHS.

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, or the A5 chip manufactured with 32nm process technology. The A5 used in the iPad Mini is a part that has been used in two other Apple products, including the latest Apple TV model, which uses only one of the cores in the A5 32nm, as well as the latest version of iPad 2. Because of this, the A5 processor costs US$13.00, accounting for only 4% of the total BOM. This compares to US$16.50 for the Texas Instruments (TI) OMAP processor used in Amazon's Kindle Fire HD.

"The use of the A5 is a great example of Apple leveraging a common component in as many devices as possible in order to increase purchasing volumes and keep costs to a minimum," Rassweiler said.

Additionally, IHS said despite the well-publicized legal battles between Samsung and Apple, Samsung remains the manufacturer of the processor, the same as in the iPad 2 and New iPad. The A5 is based on Apple's own design, and Samsung simply serves as the part's foundry manufacturer, rather than as its supplier, added IHS.