iPad Air Has Spendier Display, Costs Less to Make Than Earlier Models

There’s a new iPad in town, and that means the folks at research firm IHS are once again doing what they do best: Taking it apart for a look inside.

In the latest of its teardown analysis reports obtained by AllThingsD, the firm said that Apple’s iPad Air (see Walt Mossberg’s review) costs between $274 and $361 to build, depending on the model. The device sells at retail for a starting price of $499 for the base 16-gigabyte Wi-Fi only model, and for as much as $929 for a 128GB model with Wi-Fi plus cellular data service.

I talked with Andrew Rassweiler, the analyst who oversees the teardown work at IHS’s lab in Los Angeles. “What I expected to see inside was basically an iPhone 5s with a bigger display,” he said. “That was a little true, but a little not.”

Some key changes occurred on the iPad Air from the third-generation iPad, which was the last full-sized model IHS studied. (There was, of course, the first iPad mini last year.)

The biggest changes, he said, were with the display and touchscreen assembly. For one thing, it’s thinner and has fewer layers in the combined assembly than in previous models. But, at an estimated combined cost of $133 (about $90 for the display and $43 for the touchscreen parts), it’s a lot more expensive than before, he said. South Korean electronics companies LG Display and Samsung are both thought to be suppliers of the display, he said.

For the touchscreen bit, there’s a new type of sensor known as a cyclic-olefin polymer sensor that sits underneath the outer layer of Gorilla Glass that users touch. What used to require two layers of glass, Rassweiler said, now requires only one. As a result, the whole assembly measures out to 1.8 millimeters thick, versus 2.23 millimeters on the third-generation model.

There are also fewer LED lights providing the backlighting to the display than before. The brightness that once required 84 LED lights is now being accomplished with only 36. Rassweiler said that while it’s possible that the LED lights are brighter and more efficient than in previous models, Apple is also using thin layers of optical film to distribute the light from the LEDs across the entire display. “These optical films don’t get the credit they deserve,” he said. Fewer LEDs cuts down on the weight and the power drain to the battery.

But even with a more expensive display, the total component cost of the base model, at $274, is still $42 cheaper than the entry-level third-generation iPad. That’s because not much else inside the iPad has changed drastically since then.

Yes, there’s a new Apple chip, the A7, but at an estimated cost to Apple of $18 (Samsung still manufacturers it for Apple under contract), it costs five dollars less per unit than the A5 processor did 18 months ago. Dialog Semiconductor produces a power-management chip that goes with it, though this one is bigger than the one seen in the iPhone 5s.

Other suppliers include Qualcomm, which provided cellular data network chips at a cost of $32 for the four models that are LTE-ready. Skyworks, Avago Technologies and TriQuint Semiconductor all supplied different bits of the wireless technology.

With the iPad Air, Apple appears to have reached a new milestone on the wireless front: It can support every LTE frequency with a single combination of chips. “This is something Apple tried to do with the iPhone 5s and 5c, but it couldn’t quite get there,” Rassweiler said. “One single model of the iPad Air is able to work with all U.S. wireless carriers.”

The benefit: Less variation of models mean lower total costs overall, and higher gross profits. He said there’s probably not enough space to pack all the chips required into the smaller enclosure of an iPhone. As chips get smaller, future iPhone models will likely benefit from a single model for all carriers, too, just not yet.

Other component suppliers have been spotted in previous iPad models: Broadcom supplied a controller chip for the touchscreen. Cirrus Logic supplied an audio chip. STMicroelectronics supplied a gyroscope chip. Bosch Sensortec supplied the accelerometer. And AKM Semiconductor supplied a compass chip.

Elpida, a unit of Idaho-based Micron Technology, was spotted as the supplier of the DRAM memory chips in the unit IHS examined, though other memory chip vendors are known Apple suppliers, including SK Hynix and Samsung, adding about $10 to the component cost. Similarly, IHS found Toshiba-made flash-memory chips in its teardown specimen, though, again, Samsung and SK Hynix are known flash suppliers, as well. Depending on the model, flash chips account for between $9 and $60 of the component cost.

All told, IHS estimates Apple’s implied gross margins on the iPad to range from 45 percent on the 16GB Wi-Fi only version to 61 percent on the 128GB LTE version.

Below is the call-out slide from IHS’s presentation report. It’s basically a labeled version of the “exploded view” image above. You can click to make it bigger: