iSuppli: Apple TV tear-down reveals uncharacteristically slim profits

“When Apple CEO Steve Jobs called Apple TV a ‘hobby,’ he wasn’t kidding,” Arik Hesseldahl reports for BusinessWeek.

“By typical Apple standards, the new set-top video box may as well be a hobby given how unprofitable it is in its current form. That’s one conclusion you can draw from research firm iSuppli’s analysis of the innards of the device, which connects a TV to videos stored on a Mac or Windows computer,” Hesseldahl reports.

“Having taken it apart, iSuppli estimates that the components and materials used to make Apple TV cost $237. Since Apple sells it for $299, that would leave a gross profit of $62, or about 20%, before marketing costs,” Hesseldahl reports.

“‘This is certainly a departure for Apple, or at least it’s approaching a departure,’ says Andrew Rassweiler, analyst with iSuppli. ‘We made some very aggressive assumptions with this device, and by that I mean we assumed low prices on the components.’ If the costs were much higher, ‘we’d be looking at a device that Apple was subsidizing,’ perhaps in hopes of making up the difference with video content deals, Rassweiler says,” Hesseldahl reports.

Full article, including descriptions of components that make up the Apple TV, here.

16 Comments

  1. ‘We made some very aggressive assumptions with this device, and by that I mean we assumed low prices on the components.’ If the costs were much higher, ‘we’d be looking at a device that Apple was subsidizing,’

    So, basically, they have no idea of the true cost to manufacture the product.

  2. It tells me that the profits will be coming from elsewhere, like rentals or licensing links to subscription VOD sites. Hence their use of a Subscription model for recording revenue.

  3. Break even with the basic unit
    Increase margins with upgrades,
    and as Huh said,
    get market share ASAP and lock in users.

    by the way, I may be bias, cause

    WE LOVE OUR APPLETV
    cant wait for al-carte channels, good bye DirecTV

  4. iSupply has traditionally been way, way, high on their component estimations, and tends to understimate how low suppliers will go to acquire additional business. Count on the Apple TV costing no more than $200 to produce.

    Now Apple has a $399 version, which has a 120 GB more hard drive space, for $100 more – now we are back to more traditional Apple margins.

    Apple was agressive with Apple TV pricing because it needs to seed as many units as possible, in order to boost movie sales. Apple must use it to force the hand of hold-out studio’s to get onboard.

    If Apple can show strong growth in movie sales – due to Apple TV sales – then other studio’s will get onboard. Once that happens the snowball starts. More studio’s mean more choices and thus more movies sold. More movie choice means more Apple TV’s will sell, which again means more movies purchased.

    Apple must get to a point where it can then force the hand of the studio’s into movie rentals, but this could be a year or so out… Fall 2008 or so…

  5. The appleTV should be seen as a catalyst rather than an product that makes money.

    If anything, the guys from hackintosh have shown you can get a decent computer out of the AppleTV… and that says something.

  6. isuppli is useless, the figures are just wild stabs in the dark, they don’t know what deals Apple or any other manufacturer has arranged, what bul they’re buying in etc.

    Even if Apple are making a smaller amount of profit on it – so what? Steve Jobs has stated that it’s a hobby, maybe they’re willing to take more of a risk on the profit for something with at the moment has such a limited market. As they sell more and learn to monetize the potential of digital content on a tv then they’ll no doubt add new products and revise costs etc.

  7. Microsoft make a profit on each xbox 360 unit it sells. It would make even more if it charged Adobe bend over and let me shaft you yp the arse rip-off prices.
    It’s in operational costs where Microsoft gaming section loses money. Not in 360 hardware.

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