Smart Covers were launched by Apple together with the iPad 2 tablet in March, but they generate hundreds of millions of dollars in profit for the company from Cupertino. An American analyst did a calculation from which it appears that Apple collects over 300 million dollars from the sale of Smart Covers at an average price of $40 (the equivalent price of the polyurethane version) and half of that amount is profit. He estimated that 90% of iPad tablets were purchased with a Smart Cover and in the last 3 months and keeping the average price of 40%, Apple collected 300 million dollars from the sale of these accessories.
We have visited a number of stores to observe customer buying behavior. We believe there is a very high correlation between sales of iPads and sales of Apple's iPad covers. With a sales price of approximately $40/unit, and likely 50% gross margins, we believe that iPads can provide a lift on ASPs and gross margins. If we assume that 90% of iPad sales in the June quarter include Apple's covers, then this would add about $300 million in revenue and $150 million in gross profit, or 60 basis points (bp) to gross margin.
If we think that half of that amount represents pure profit, then we understand why Apple has money to play in the courts. Unfortunately for us, Apple makes good money on all its products, for example the difference between a 16 GB and a 32 GB iPhone is $100 and Apple explains this difference by the fact that the storage medium is more expensive. In reality, Apple only pays $15 more for a 32 GB Nand FLASH, but we pay $100, so Apple takes $85 in profit from this sale alone, and the theory also applies to iPad tablets.
In conclusion, accessories bring a lot of money to the Apple company and the profit turns out to be among the biggest in the industry.
