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Apple iPad 2 Faces Severe Component Price Inflation

Apple average revenue per iPad 2 is likely to decrease significantly as the company is constrained to sell the new models at the same price as the old ones despite a reported steep rise in the bill of material (BoM) as well as related costs.

The detailed teardown carried out by iSuppli showed that the cost of a 32GB iPad 2 3G hovers at around $326.60 for the AT&T GSM model; this compares with $250.60 for the 16GB Wi-Fi only version of the iPad according to a similar teardown carried out by iSuppli in April 2010.

The most expensive component, the Display module, became even dearer. Last year, the display module and the touchscreen assembly cost $95 while the iSuppli says that the iPad 2's display component comes in at a whopping $127, a 33 per cent ($32) price inflation.

The transition to a clipless design with more expensive glue, comparatively poor manufacturing yields on LCD as well as a thinner type of Gorilla glass, have been credited for the price rise.

This singlehandedly accounts for the steep rise in the BoM bill of the iPad 2. Apple managed to cut the price of the Flash and DRAM memory components from $66.30 to $65.70, a considerable feat given that Apple has simultaneously doubled the amout of RAM.

The price of memory though is likely to go through the roof after the huge earthquake in Japan which might have knock-off effect on DRAM and Flash memory prices.

In addition, moving to a dual core system on chip increased the price of the SoC by 33 per cent to $14. Similarly, the iPad 2 didn't have two cameras and an additional accelerometer, something that will have to be included in the BoM.