Apple TV provides low margin, says analyst

Stephen Withers
Friday, 08 June 2007 05:50

Your IT - Home IT

A breakdown of the Apple TV's component costs performed by market intelligence firm iSuppli shows a gross margin of just under 21 percent, around half that of an iPod.

"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 teardown services manager and senior analyst Andrew Rassweiler.

Just $US62 difference between the retail price and the component costs doesn't give Apple much room to make a profit on sales once items such as packaging, marketing and retailer's margin are taken into account.

This does provide some insight into the paucity of content suitable for the Apple TV outside the US. Apple's making so little on the hardware there's no real reason for it to aggressively push the product elsewhere at this stage. Contrast the situation with the iPod, where the company seemed content to make a small margin on iTunes Store sales as a way of encouraging profitable iPod sales. (That said, only a handful of songs have been sold per iPod.)

Apple CEO Steve Jobs recently characterised the Apple TV as a "hobby", but if US sales do take off - iSuppli is forecasting shipments of one million units in 2007 and 1.4 million in 2008, which would make it a market leader - Apple will be better placed to negotiate more profitable deals with content providers. If you're not making money on the razor, you need to make it on the blades.

The recent announcement of a 160G hard drive option makes the storage of HD content more viable, and may be an indication that it will soon be available from the iTunes Store.

Once Apple can see a profit in the overall Apple TV/iTunes Store picture in the US, we would expect the company to become more aggressive in expanding it to other countries.