In the past couple of years, Greg Linden, Ken Kraemer, and I have analyzed the distribution of profits and jobs in Apple’s iPod, as well as in several notebook PCs and smart phones. For the iPod, we found that the biggest share of profits goes to Apple, with a few major suppliers in Japan and Korea capturing substantial profits from components such as displays, hard drives, batteries and integrated circuits.
Recently, we did an analysis of the iPad 1 to see if anything had changed. The answer is, “not much”. Like the iPod and iPhone before it, the iPad is a big money maker for Apple, which keeps about 25% of the sales price of a $499 model (much more – 10-15%more – if the iPad is sold through Apple’s own retail outlets or online store). After Apple, the next biggest beneficiaries are Korean companies LG and Samsung, who provide the iPad’s display and memory chips. The gross margins for LG and Samsung account for 7% of the retail price. From there, the amount of value captured falls off dramatically: several smaller U.S., Japanese, and Taiwanese suppliers capture 1-2% each.
Aside from the companies who supply the iPad’s component parts, what about the value captured in China, where the iPad is assembled? Since there are no Chinese parts suppliers to the iPad, the only benefit to China is in wages paid for manufacturing – and the amount is not large. Perhaps half of the $50 in total direct labor required to produce an iPad is paid in China. So, while each iPad sold in the U.S. adds about $250 to the U.S.-China trade deficit (the factory cost of an iPad), the value captured by China is at most about one-tenth that amount, and probably less.
By examining the value chain, we are able to see the importance of the lead companies whose brand name appears on these products, even though the components come from different companies and the manufacturing take place in another country. Apple’s ability to create successful products by leveraging innovation through the global value chain translates directly into profits and high-wage jobs in the United States. If the iPad were mace by Sony or Samsung, the balance of value capture would look dramatically different.
This value chain analysis was recently the subject of a Huffington Post article. You can see the visual breakdown below.