updated 05:50 pm EDT, Wed June 6, 2007
Apple TV has thing margins
The profit margins on the Apple TV hover around 20 percent, in contrast to margins of 40 to 50 percent for most iPod models according to the latest report from analysis firm iSuppli. The report does not account for other costs, including cables, packaging, marketing (nor research and development) expenses, so the report claims that Apple's margin may be even lower. Speculating on the reason for Apple's pricing on the unit, iSuppli says that the company is eschewing profit in exchange for the potential ability inject the iPod model permanently into the home living room. Recognizing the unit as a media hub, the analysts note the lack of DVD playback, DVR capability, etc., echoing Steve Jobs' comments at the Dow Jones D5 conference that the Apple TV is "the DVD player for the Internet age."
"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 $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 regard to specific components: iSuppli pegs the price of the Intel 1GHz Pentium M, which uses the older 90nm process, at $40, while the combined estimated value of the Intel microprocessor and the northbridge and southbridge core logic chips is about $68. The Nvidia GeForce Go 7300 Graphics Processing Unit (GPU), which has an estimated cost of $15. The hard drive is estimated to cost $37, the 802.11n card $19, and the manufacturing $10. Adding in the cost of miscellaneous components, iSuppli estimates the total production price of the Apple TV at $237.
iSuppli puts forth strong shipping estimates for the Apple TV, estimating 1 million units shipped during 2007, and 1.4 million units in 2008. However, the analysts also note some potential risk, including an unidentified product category (not a DVR, Cable box, etc.)
"There's a slew of these Digital Media Adapter devices on the market today that offer similar capabilities to the Apple TV," said Mark Kirstein, vice president, multimedia content and services for iSuppli. "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."