Apple TV favours market share over profits

Apple is abandoning its usually high profit margins with the www.vnunet.com, according to an analysis by iSupply.

The analyst firm calculated that the bill of materials for the device comes to US$237 (A$320). The US$299 retail price gives the Apple TV a 20.7 per cent gross profit margin, which doesn't account for cables and marketing costs.

Apple's iPod media players typically offer a 40 to 50 per cent profit margin.

Apple launched the Apple TV late March. The device allows users to view photos, watch home movies and videos purchased from the iTunes music store on their televisions, as well as listen to music. iSupply senior analyst Andrew Rassweiler said that the pricing indicates that Apple isn't looking for the Apple TV to boost its bottom line. Instead the comapny is building market share for both Apple TV as well as the iTunes media store.

"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 is a fully functioning computer with an Intel processor, 512 Mb memory and a 40Gb hard drive.

But iSupply's analysis showed that the designers had to significantly cut corners to control its price. Most notably, it features a custom designed 1.0 Ghz Intel Pentium M processor that is manufactured on a trailing-edge 90nm production process. The chip costs an estimated US$40.

Because the Apple TV is grossly underpowered to function as a computer, iSupply instead refers to the device as a set top box that acts as a media hub. The firm furthermore projected that it could evolve into set top box for internet television.

This assertion would be further supported by last week's announcement that users will be able to use the Apple TV to watch YouTube videos. Secondly, it's $15 Nvidia GeForce Go 7300 video card with 256Mb of memory offers fuels further speculation about Apple's television aspirations because it allows the device to broad cast high definition video. Apple's iTunes store currently doesn't sell HD video content.

iSupply projects that Apple will sell 1m of the devices this year, and another 1.4m next year. But the company cautioned that it is also facing several hurdles that are outside of Apple's control.

Consumers for instance require a home network, broadband internet connection and high definition television to make optimal use of the Apple TV. Consumers furthermore could get confused about its functionalities because they overlap with those of digital video recorders, satellite set top boxes and DVD players. The Apple TV however doesn't replace any of those devices.

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