June 7, 2007
An iSupply analysis suggests that Steve Jobs is forgoing (for practical reasons?) Apple’s customary high hardware margins with the new Apple TV in an effort to promote volume sales.
The Apple TV, which was released in March, is priced at $299, which is great for selling, but not necessarily great for profit. iSuppli’s Apple TV bill of materials (BOM) estimate does not account for other costs, including cables, packaging and marketing expenses, so Apple’s actual margin is somewhat smaller.
“This suggests that Apple is taking a market-penetration strategy for the Apple TV, rather than the simple profit-per-unit approach it has always used in the past,” said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. “The Apple TV itself is a very low-cost design, primarily due to its use of a trailing-edge microprocessor. At US$299, some have called the Apple TV the ‘cheapest Mac.’ However, based on the minimal microprocessor performance and the application’s scaled needs, it might be better to call the Apple TV a ‘LobotoMac.’”
With the Apple TV not expected to generate much profit for Apple, it is clear the company’s real goal for the product is to migrate its highly-successful iTunes service from consumers’ home-office PCs to their living room TVs. However, while Apple is the company most likely to succeed in this endeavor, iSuppli analysts believe, it is embarking on a quest to bring Internet content to television that many others have failed at in the past.
Apple TV is essentially a home-bound iPod video with no display and an HDMI output for linking to a digital television (DTV) instead. It does not function as a digital video recorder (DVR), cable/satellite STB or DVD player/ripping device, and therefore does not replace any of these products. Instead, it serves as a media hub, designed to get content from the iTunes store or from computers on a wired or wireless LAN. The device is otherwise like an iPod video, and can store up to 40GB of media content, and can network and access media content from other devices running iTunes.
Apple’s success with the iPod and iTunes makes it likely that the company will be able to sell a significant number of Apple TVs this year and next, iSuppli believes. However, Apple TV, however, faces a slew of challenges, including the following:
– The requirement for various other products and services to make it work, including: broadband Internet access, home wireless networking, a DTV and an iTunes account to obtain purchased content.
– An undefined product identity. What exactly is the damn thing? The Apple TV does not function as a DVR, cable/satellite STB, or DVD player/ripping device, but it does, to a degree, compete with all of these products to a degree.
– The Apple TV’s 40GB hard drive is virtually inaccessible to users, and it has very modest storage capacity, especially for future HD content.
Perhaps the biggest challenge will be lining up compelling content, according to iSuppli analysts. Nonethtless, iSuppli believes that Apple TV shipments will kick off strongly.
“Apple TV shipments likely will reach about one million units during 2007, and 1.4 million units in 2008,” predicted Chris Crotty, senior analyst, consumer electronics, for iSuppli. “Considering Apple’s successful track record with the iPod and iTunes, the acceleration of movie download efforts in general and the potential for future price decline and/or additional features in future products, this forecast seems attainable.”
Apple TV sales have been poor, and the company has not released exact sales figures. TVPredictions.com’s Phillip Swann predicts that within a year’s time, Apple TV will be defunct, citing that people just really aren’t interested in sending audio and short video files to their HDTV.