For iPad 2, low production yields and high demand raise touch panel and A5 chip prices

The new A5 chip, cameras and high demand that caught touch screen panel makers on the wrong foot are all blamed for an increase in iPad 2 bill of materials compared to the last year’s model. On the flip side, comparable flagship devices cost more to manufacture as their vendors are having trouble matching the iPad’s popularity, Apple’s vast cash horde and its buying power enabling the company to squeeze the best deals out of Asian suppliers. Still, iPad 2’s touch screen costs $33 more and the new dual-core A5 processor is 75 percent pricier than the previous generation, or $14 per unit.

Apple pays an estimated $127 for touch screen panel per each unit, iSuppli noted. It’s a substantial increase over their $95 estimate for the previous generation, which they attributed to low manufacturing yields caused by “manufacturing challenges” stemming from high demand in 2010 that caught suppliers unprepared, thus raising prices. Digitimes quoted iSuppli’s senior director and principal analyst Andrew Rassweiler:

Production yields, though they have been improving, has been very low throughout 2010, and drove prices to be much higher than initially expected.

Other factors contributing to the cost increases include the use of pricey glue that holds internal components together and a third thinner cover glass, presumably of the Gorilla variety, and additional manufacturing equipment used for optical and panel examination.

iSuppli estimated the iPad 2 bill of materials at $323.25 for the 32GB CDMA version, with its GSM counterpart carrying a $3.35 premium – a notable increase over their previous bill of materials estimate of approximately $320.00 for the 32GB 3G original iPad.

Another analysis by UBM TechInsights pegs iPad 2 bill of materials to just $270, claiming Samsung-built A5 chip costs $25 per unit, or 66 percent more than Nvidia’s Tegra 2 system-on-a-chip. Both firm’s estimates show a lower price of iPad 2 components versus the 32GB 3G Motorola Xoom that carries a bill of materials of $359.92 or $288, according to iSuppli and TechInsights, respectively. Note that those estimates only take into account costs of components needed to build the device and manufacturing costs, excluding royalty fees and costs associated with research and development, packaging, distribution, marketing, sales and more.