Greg's Bite: No Margin, No Apple TV Set
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Greg's Bite: No Margin, No Apple TV Set

Posted by Greg Mills

Those who predict Apple products tend to be wrong as often as they are right. Apple is famously secretive in its product development, for very good reasons. First the free publicity is worth millions when the curtain is drawn and months of speculation comes down to "oh, one last thing". If Steve Jobs had any fun in life that really mattered to him, it was in making monkeys out of the competition and us Apple tech writers in releasing the latest Apple device that we got wrong.

The second reason for the dark drapes of secrecy in Apple product development is that from the first products Apple put out years ago, the competition has reversed engineered or just plain stolen Apple's marketable ideas. Patents and trade secrets are the second line of defense as secrecy is the first. The competition hears about the latest Apple products at the public release and have no time to duplicate Apple products for some period of time, hopefully until the next version of the Apple device is ready to roll out.

The iPad is an example of the copy cats not keeping up. Just ask the "me too" tablet computer makers out there. By the time they even match the current hardware Apple has released a year back, Apple raises the bar again. "Flummoxed" is Steve Jobs word for the incredibly hard row to hoe Apple competitors face.

Thus, an early public release of Jobs plans for Apple to launch a full blown TV set runs counter to history. Steve knew his biography would be scoured by friends and foes alike for hints as to what is going to happen next in Apple's product line. With public crucifixion with rusty nails the penalty for leaking unreleased product information, would Mr. Jobs, himself publicly release Apple Television information a couple of years before the product is due to be released?

While the notion of a high end Apple HDTV set, created from scratch by Apple sounds incredibly cool there are interesting details that enter into the situation that in my mind run counter to the recent flood of publicity about Apple's TV plans being a foregone conclusion.

1. The margins on Apple products run much higher than any competitor. Apple has sharpened its pencil in supply chain purchases and due to being the largest consumer of electronic parts, they demand and get the first shot at using new parts and also get great prices due to volume and shear negotiation skills. HP decided to get out of manufacturing PS due to the approximately 7% margin common to the PC market. Apple has margins on the Mac of closer to 25%. Recently, HP announced that they might stay in the low margin PC manufacturing business after all. Flip, flop, flip... Sounds like NetFlix, managing their business by reacting to public outrage.

2. Steve Jobs indicated his breakthrough was in the control of HDTV content, which is in line with the current Apple TV product. Why not upgrade the Apple TV product to include DVR and cloud features that would make any HDTV work as in Steve's vision? The large HDTV LCD displays are expensive and now just a commodity item. Margins on large screen TVs run under 10% and the prospects some bloggers have suggested of Apple getting twice the going price for their TV products at retail is not realistic, in my mind. The only thing that would change the calculous would be a revolutionaly breakthrough in display technology that Apple owns.

3. What I think is coming is a tremendous upgrade to Apple TV that includes Apple magic in some sort of HD DVR that anticipates what you will want to watch and is controlled over the internet by Siri voice commands. If the new Apple TV box could replace all current satellite or cable boxes and get Apple into the big time in streaming video content, low margins in Apple TV products could be maintained, betting on the download generated profits. That would not require building and shipping large low margin TV display products. Apple wants to sell digital content as that is a long term income rather than a complicated high cost low margin product which runs counter to all we see Apple selling. The giant server farm Apple built will not stay idle, you can bet on that.

I could be dead wrong. I have been advised by my wife that there is a Greg Mills distortion zone, but she assures me I am the only one confused by it... Will I eat an Apple HDTV if they ship one? No, but I might buy one. I would certainly buy an enhanced Apple TV DVR product which I suspect is actually what is in the works. That is Greg's Bite


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