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Apple TV selling for razor-thin margins?

updated 09:45 am EDT, Wed June 6, 2007

Apple TV Thin Margins

The Apple TV may be selling near break even or potentially at a loss, according to a new study by iSuppli. A breakdown of the stanard 40GB media hub's component costs suggests that a finished device costs $237 to produce; this leaves just $62, or less than 21 percent, of the selling price to be recouped by Apple. However, the figure is said to omit the necessary marketing costs for the device, suggesting that the actual revenue per device is either slim or may actually incur a slight loss.

"We made some very aggressive assumptions with this device, and by that I mean we assumed low prices on the components," says iSuppli analyst Andrew Rassweiler. "[We might] be looking at a device that Apple was subsidizing."

The costs are distributed relatively evenly across the hardware, according to the research. The 1GHz Pentium M at the center is valued at $40, while the 40GB hard drive is $37. The mainboard is $28 while the key dedicated GeForce Go 7300 graphics and 802.11n Wi-Fi chips cost $15 and $19 respectively.

The recent addition of a 160GB version of the Apple TV is likely an attempt to boost the margins to a higher level, Rassweller says. The larger drive adds $36 to the raw pricing but allows Apple to sell the expanded version for an extra $100, regaining some of the lost revenue.

The price of at least the 40GB model is "a departure" for the company, the analyst says, as many iPods and Macs see significantly higher margins. Apple's yet to be released iPhone may command as much as a 50 percent gross margin that will provide room for split profit between AT&T and Apple as well as the possibility of price cuts.

CEO Steve Jobs recently described the Apple TV as a "hobby" at the D: All Things Digital conference hosted by the Wall Street Journal, citing the relatively unestablished market for network streaming devices. Few companies currently produce hardware that streams computer content to TVs, with Apple's most likely largest competitor coming through the future release of Sling Media's SlingCatcher.



By Electronista Staff
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  1. mmmdoughnuts

    Fresh-Faced Recruit

    Joined: Feb 2006

    0

    21% slim margins?

    You gota be kidding me. Anybody would kill for those margins. So yes, marketing might eat into that but it doesn't have to FOREVER.

  1. bfalchuk

    Fresh-Faced Recruit

    Joined: Jul 2003

    0

    Blades and razor

    and they can juice movie sales via the Apple TV. I know it's backward of the iPod model (use songs to sell profitable iPods), but the movie sales may bring more margin, and thus make it more attractive to take media margin over device margin. Plus, you get network effects by selling the Apple TV, so you need to watch just how high the cost of entry is.

  1. Zkatz007

    Fresh-Faced Recruit

    Joined: May 1999

    0

    I doubt it

    Apple highly values its margins; I doubt it would ever sell ANYTHING at a loss, let alone "razor-thin" margins. I would guess they wouldn't settle for less than 15%, if I had a guess. Even that seems low!

  1. vasic

    Fresh-Faced Recruit

    Joined: May 2005

    0

    Are we sure they're right

    Usually, iSupply gets its info very right. I have some doubts here, though. Apple is probably the only hardware company in the whole world whose margins are never below 35%. If I remember well, not long ago (maybe a year or two) Steve Jobs had said as much (to the effect of: 'if margins went below 30%, the business wouldn't be worth it and they would cancel the product).

    That Apple would put out a product with such razor-thin (for Apple standards) margin is quite strange. That such a product would be somewhat of a stepchild (or, a 'hobby', as SJ put it last week), and would still be out with such low margins sounds to me very difficult to believe.

    There has to be some kind of a supply deal with some of the component vendors that makes the price just enough cheaper for it to provide the minimum 30% margin for Apple to be comfortable selling it.

    While others (Dell, HP, Gateway) would kill, pillage, steal and lie for a margin of 21%, I genuinely doubt Apple is getting only that much on the Apple TV.

  1. chadpengar

    Fresh-Faced Recruit

    Joined: Oct 2001

    0

    wholesale vs retail

    How does iSuppli account for wholesale pricing? I seriously doubt Circuit CIty and Costco (two places I have see it for 289) are doing it for free. This makes the real numbers even "worse".

  1. hayesk

    Professional Poster

    Joined: Sep 1999

    0

    Marketing costs

    Marketing can account for a large portion, and dealers need to make profit on the device.

    But maybe this will silence the "It's gotta have a PVR" complaints. How much would Apple have to charge if it had a PVR?

  1. UberFu

    Fresh-Faced Recruit

    Joined: Oct 2002

    0

    well...

    if that's the case - then for $300 more you get RAM and a couple of input/output ports and you have a Mac mini ?

    Oh wait you have to swap out the processor since the Apple TV has a lesser re-vamped processor than a full-fledged "computer" - right ?

    Then [chadpengar] touched on it above - wholesale vs retail pircing_ The break down in the article - mentions a 40Gb drive for $37_ I can make a phone call and get that price while buying just one unit and I'm nobody_ Some of the other pricing may be more on target like for the motherboard and wireless chip_

    First - they aren't paying tax on the parts they purchase [since they are deemed for resale]

    Second - when a company [like Apple] buys something in "bulk" They are getting a huge price break on the wholesale end of things_

    3rd - I've seen one [1] commercial for the Apple TV and that was only at Apple's website_ I have not seen that commcerial on my TV_

    In contrast I constantly see iPod commercials left and right_ I constantly see the "get a mac" Ads left and right_

    I've seen the original iPhone Ad on TV at least 10 times since the first announcement in February_

    And I'm in more of an obscure market_

    $th - Apple's "marketing budget" - has anyone seen figures for specifically the Apple TV ? Or is everyone merely talking out of their noses and refering to the entire "marketing budget" for all of Apple ?

    Finally - to keep in mind - Apple is not buying the parts wholesale in the US_ they bought these parts from elsewhere - the laptop I have next to me says assembled in China_ maybe the parts came from there ? Which would again defeat half of what has been said here and drop the cost of parts significantly lower than this entire discusion_

    i'm not an expert - but people really sould learn to educate themselves before they quote retail pricing from RadioShack or PCMall_

  1. Terrin

    Fresh-Faced Recruit

    Joined: Jan 2006

    0

    Gross Margins

    Vasic, your statement concerning Apple's margins are incorrect. I am invested in Apple, and I read the financial reports every quarter.

    Contrary to your statement, I cannot remember Apple ever making gross margins 35 percent or over. Typically Apple's gross margins range from 27 to 30 percent.

    Not that this is the bible source, but the following link supports this fact. If you are ambitious Apple's own website provides this information.

    http://software.seekingalpha.com/article/28790

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