Posts Tagged ‘Tear-downs’

Google Glass

Google has garnered a lot of attention for its Google Glass product: Wireless glasses that project online information and can video record the world around the wearer. Now there’s a new minor furor. The $1,500 (90,000 INR) product reportedly contains only $80 (4,800 INR) in parts.

Website Teardown.com took a Google Glass unit apart and estimated the prices. With the most expensive component running $13.96, the device had a total cost of $79.78, including a charge for assembly and testing. That would appear to make Google Glass a highly profitable product. But there is more going on than a simple list of parts.

$13.96 – OMAP 4430 processor
$05.66 – Camera
$03.00 – Display
$08.18 – 16GB Flash Memory from Toshiba
——
$30.80 – Total Cost of Major Parts

Tear-downs, in which someone takes a device apart and estimates the cost of parts and sometimes even manufacturing, have become a near sport in high tech. Whenever a new high-profile product hits the market, you can bet that it will be only a short amount of time until someone has torn it down to investigate the ins and outs and publish a manufacturing cost estimate. Such an analysis draws a lot of attention.

What makes this tear-down noteworthy is the wide disparity between the cost of materials — known in manufacturing as the bill of materials — and the price of the final product. Even an Apple (AAPL) iPhone, easily one of the highest gross margin products in consumer electronics, offers nowhere near the gap between the cost of components and the final price of a single unit.

But tear-downs usually occur on mass market products, in which as many as hundreds of millions of units are ultimately made and sold. The cost of creating a product goes well beyond the price of parts. Usually such expenses, including engineering, design, and start-up manufacturing costs, are hidden because they are amortized across so many units.

Google has not revealed how many units it has sold, but up until a one-day sale in April, sales estimates were in the 10,000 range. If it cost $10 million to develop the product and start up initial manufacturing, that would be $1,000 per unit, and the engineering and design costs could run much higher. Tear-downs also don’t reveal how much a company might have to pay to license the intellectual property rights that it doesn’t directly own.

So, the chances are unlikely that the company is getting rich on sales of Google Glass. However, if sales hit the millions within the next couple of years, as BI Intelligence estimates, there could be a good chunk of change flowing into the corporate coffers.

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