iPad Air Is Cheaper, More Profitable Than iPad 3

Apple's AAPL fifth-generation iPad is cheaper to manufacture than the third-generation iPad -- but retails for the same starting price of $499. According to AllThingsD, which has received the first look at IHS' IHS teardown of the iPad Air, Apple is spending $274 to produce the 16GB Wi-Fi-only model. Comparatively, Apple spent $316 to produce the third-generation iPad. IHS did not release the full list of supplies, so it is not entirely clear how Apple was able to save $42. This savings may be particularly difficult to fathom when investors examine the price of the display, which has actually increased. Apple spent $57 to buy the lower-resolution display for the iPad 2, $87 for the Retina Display on the iPad 3, and $90 for a nearly identical display on the iPad Air. Samsung SSNLF and LG Display LPL are the presumed suppliers, but IHS was unable to confirm this assumption. Apple saved a few bucks in ordering A7 chips, which are manufactured by Samsung and sell for $18 each. That's a $5 savings over the A5 chip, which came out 18 months ago. Aside from that, Apple is reportedly benefiting from the fact that very little has changed since the iPad 3 was released (IHS chose not to conduct a teardown of the iPad 4 for this very reason). The iPad Air may be thinner and lighter, but those changes mean that Apple can use less material to produce its newest tablet. Related: Apple's iPad Air Sales Exceed Expectations By 30% Apple also used fewer LED (light-emitting diode) lights. While the iPad 3 needed 84 LEDs to light up the screen, the iPad Air only uses 36 LEDs. IHS also revealed that the most expensive iPad -- the 128GB Wi-Fi + Cellular iteration, which retails for $929 -- only costs $361 to produce. In other words, Apple is making a fortune selling these tablets -- especially the more expensive models. The same cannot be said for many of Apple's manufacturers, most of which are said to operate on razor-thin margins. Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report. Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ