According to a teardown carried out by IHS Technology the actual hardware costs of the 38mm Apple Watch Sport are only about 24 percent of the manufacturer's suggested retail price, giving it the lowest hardware costs compared to retail price of any Apple product.
IHS Technology estimates that the hardware cost to MSRP ratios for other Apple products to be in the range of 29 to 38 percent [UPDATED: IHS corrected a math error].
The most expensive component is the LG display, which is estimated to cost $20.50, while the processor adds $10.20 and the memory a further $7.20. That tiny battery is estimated to cost a mere $0.80, with the contents of the box - which includes a charger and spare wristband - adding $9.00 to the cost.
"It is fairly typical for a first-generation product rollout to have a higher retail price versus hardware cost," said Kevin Keller, senior principal analyst-materials and cost benchmarking services for IHS Technology. "While retail prices always tend to decrease over time, the ratio for the Apple Watch is lower than what we saw for the iPhone 6 Plus and other new Apple products, and could be of great benefit to Apple's bottom line if sales match the interest the Apple Watch has generated."
Note that the analysis does not include logistics, amortized capital expenses, overhead, R&D, software, IP licensing and other costs.