Posted by Eric Huang on March 28th, 2013
If I were building a camera today, I would build 1 chip. I would offer 3 versions of that Camera
1) SDXC Card Slot Only – The cheapest version
2) 16 GB embedded Flash with SDXC Card Slot
3) 64 GB embedded Flash with SDXC Card Slot
The question you might ask is, how would I make money on this?
Let’s talke about the cost of embedding the Flash
What does Flash Cost?
The real answer is I don’t know. In addition to the cost of chips, you have real estate and module pricing and all those other things. And yet companies like Lexar and Apple can make money making products with more memory.
I did some very simple and probably inaccurate research,
If a company like Lexar can build a really great 64GB Flash Drive and sell it for 120 bucks, how much can they make?
You can see our speed tests of the read write speed of the Lexar drive that the Drive can achieve read speeds of 185 MB/s, the fastest in it’s class. It is not as fast as the SanDisk SSD that can achieve the speeds of up to 5.4 Gbps, but it’s faster than the memory in an iPad/iPhone. More on that in a second.
Assuming the Retailer makes a 50% margin and Lexar makes a 50% margin, then the cost to Lexar for the entire bill of materials is something like:
$120 *50% *50% = $30.
So a gross, really gross estimate of Lexar’s cost is somewhere around $30 for all the cost per unit shipped including all labor and assembly and chip costs.
If Lexar sold this through their website only, those enthusiasts would buy it and Lexar would make a cool $90 per unit.
What does Apple charge for 64GB?
And Apple, (the company whose profit margins we all want to mimic but are unable to) can charge $399 for the exact same phone as the $199 phone, just with more memory. See picture below
Apple can charge about $200 extra for 64GB of memory. You should note that this memory is not as fast as the Lexar memory.
So Apple actually gets a margin of $200-$30 or $170 for an additional $200. This gives them a margin something like 85% on this last addition of memory.
So the question camera makers should ask themselves:
If I embedded 64GB of memory inside a camera, can I get an additional $200 for the embedded memory at an improved margin of 85%.
My theory is: Yes.
If I sell relatively high-end point and shoot camera for $300, I can sell a $500 camera with 64 GB of fast memory and USB 3.0. There are definitely the enthusiasts that will buy this camera. These enthusiasts will likely be willing to go straight to the manufacturer, so the manufacturer. If the manfacturer only sells through their online store or through limited stores, the manufacturer can take more margin.
The question you might ask is, how many do I need to sell?
The answer is enough. My limited understanding is that cameras are made in lots of only 50,000 or 100,000 units.
In this case, the camera maker can actually pre-assemble almost everything, and simply build the high-end cameras ready to be customized with the right amount of memory. They can be shipped directly from the manufacturing site to the enthusiast. Obviously, the other thing is to build a first lot and make them available for immediate shipment. Then have a post-ponted, partitally manufactured lot ready to add memory, ready to ship when you start to run low on the initial lot.
More economics tomorrow (or the next day).
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