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Review:
Apple TV goes to bottom instead of top of the
line
By
Bernard Cole
iApplianceWeb
(06/08/07, 1:54 AM GMT)
El Segundo, Ca.
– According to a just released teardown by iSuppli of the just introduced
Apple TV, instead of taking a feature-rich, top of the line approach focused
on high average selling price, the company is instead going after the high
volume market where the winner is the device with the lowest price.
According to Andrew Rassweiler, teardown services manager and senior analyst
for iSuppli, the company is is eschewing its customary high hardware margins
with the new Apple TV in order to promote volume sales, a market
segmenet and approach with which it is totally unfamiliar.
The head
of iSuppli Corp.'s Teardown Analysis Service says the Apple TV is priced to
sell at $299. But it's not priced for profit, with this new mutation of
Apple's iPod line generating a meager 20.7 percent gross margin,
compared to 40 percent to 50 percent for previous members of the iPod family.
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 Rassweiler. “The Apple TV itself is a very low-cost design,
primarily due to its use of a trailing-edge microprocessor.
At $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’s 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 Apple’s first real foray into the Set-Top Box (STB) space, and is, in
essence, a home-bound iPod video with no display and an HDMI output for
linking to a Digital Television (DTV) instead,” Rassweiler. “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.
Rather,
he said, the Apple TV is 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 40Gbytes of media content, and can
network and access media content from other devices running iTunes.
While
the Apple TV is an STB that performs similar functions as an iPod video, on
the inside it’s a PC with older-generation components, based on a customized
version of Intel’s 1GHz Pentium M that is made using trailing-edge 90nm
process technology.
“The use
of the old and slow Intel microprocessor is a major factor keeping down the
BOM cost of the Apple TV,” Rassweiler said, with the microprocessor priced at
$40, far less than Intel is charging for its more cutting-edge dual and quad
core chips.
“If the
Apple TV were based on a more current microprocessor, such as Intel’s CoreDuo
or CoreSol, the product’s BOM cost would likely match or exceed the retail
selling price,” Rassweiler said.
While it
is expected that the company will be able to sell a significant number of
Apple TVs this year and next, iSuppli believes, it faces a number of
challenges if it expects to be a significant factor in this market segment.
For one
thing, he said, it is not a well defined product, unlike the iPod. The Apple
TV does not function as a DVR, or cable/satellite STB, or DVD player/ripping
device and therefore cannot replace any of these—although it competes with all
of these products to a degree.
Another
reason to bet against its success, at least initially, is the Apple TV’s
40Gbyte hard drive, which is extraordinarily small, only 40 GBytes, especially
in the context of the memory-hungry demands of fugure High-Definition (HD)
content.
Perhaps
the biggest challenge will be lining up compelling content, according to
iSuppli analysts.
“Apple
has good access to content, but there will be lots of complications,” said
Mark Kirstein, vice president, multimedia content and services for iSuppli.
“Already
Starz Entertainment has sued Disney, because it has exclusive television
distribution rights for certain Disney properties. This wasn't an issue when
Disney licensed to iTunes for personal media players, but becomes one for
TV-based distribution.”
iSuppli
analysts expressed optimism that Apple could succeed where others have failed
in this area.
“There’s
a slew of these Digital Media Adapter devices on the market today that offer
similar capabilities to the Apple TV,” Kirstein said. “Yet, nobody has found
the secret sauce to get more than a few hundred thousand units shipped.
However, if any company can find the right formula for success, it's Apple.”
To learn
more, go to www.isuppli.com.
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