The billion dollar Smart Cover

I was only half-joking when, on first sight, I tweeted that I will buy a new iPad 2 to go with my new Smart Cover. The new iPad cover is enchanting.

It also seems to be enchanting to many.

I’m estimating that at least 60% of iPad buyers will get one. Based on an estimate of 36 million iPads sold in 2011 and an average price of $48 (70% polyurethane and 30% leather mix), the total revenue for Smart Covers will top $1 billion this year.

I further estimate that with a very modest gross margin of 75% (average cost to produce of $12), the Smart Cover could contribute $777 million to Apple’s gross margins.

The iPad by itself should generate $23 billion in revenue and a contribution of $7.7 billion. That means that the Smart Cover will add 4% to sales and 9% to gross profits. If taken as a bundle, the iPad+SC will increase gross margin over the iPad alone by nearly 200 basis points (taking it from 33% to 35%).

It will be interesting to compare the Smart Cover business with competitor tablet businesses.