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Review: Apple TV goes to bottom instead of top of the line
By Bernard Cole
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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