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Report: Apple TV Margins Low

6 Jun, 2007 By: Erik Gruenwedel

Apple Inc.'s Internet-enabled Apple TV may cost almost $300, but the media giant would be hard pressed to see much of a profit from the nascent set-top device, according to a new report by iSuppli Corp.

The study found that when tabulating the bill of materials for the device, excluding cables, packaging and marketing expenses, the gross margin dipped below 20%. By comparison, gross margins for Apple's line of iPod portable music and video players ranges from 40% to 50%.

iSuppli considers the Apple TV to be an extension of the iPod into the home via a flat-screen HDTV. The research company said Apple's strategy is to migrate its successful iTunes service from the Internet.

“This suggests that Apple is taking a market-penetration strategy … rather than the simple profit-per-unit approach it has always used in the past,” said Andrew Rassweiler, senior analyst for El Segundo, Calif.-based iSuppli.

The report found that Apple reduced costs to the device by utilizing a less expensive microprocessor and logic chips, compared to a standard PC. It said the device faces numerous challenges within the home, including access to major studio content, requirement of broadband Internet capability, a digital TV, home wireless network and an iTunes account.

The study also concluded that the lack of an internal digital video recorder, a DVD ripping device, cable/satellite connectivity and limited storage capacity (40GB) would brand the Apple TV as an undefined product and hinder consumer adoption, especially of those with HDTVs.

“There's a slew of these digital media adapter devices on the market that offer similar capabilities to the Apple TV,” said Mark Kirstein, VP, multimedia services for iSuppli. “Yet, nobody has found the secret sauce to get more than a few hundred thousand units shipped.”

That said, iSuppli said Apple TV shipments would reach 1 million units in 2007 and 1.4 million units in 2008.

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