Slim profits margins on the Apple TV

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will.jpgWill Head writes…

Using a set of screwdrivers and their powers of deduction, the folks over at research firm iSuppli have cracked open the Apple TV and priced up its component cost. The conclusion they’ve come to is that the profit margin on the streaming set top box is tiny compared to Apple’s usual cut on these things.

Adding up all the components and materials in the unit comes to a total of $237. With the device only selling for $299 it’s way below Apple’s more usual 50 percent profit margin on hardware.

Steve must be hoping that it will become the TV companion that the iPod has become for commuters.

Intel is taking the biggest cut of the cost base with its $40 processor, basically an under-clocked Pentium M, and $28 companion chipset. The 40GB hard drive accounts for $37 of the cost (although the recently released 160GB version costs $100 more, the hard drive only costs Apple $73 making it more profit friendly). nVidia is pocketing $15 for the graphics chip with Wi-Fi adding another $19 onto the price.

Perhaps Apple is hoping to make more money from its TV and video downloads, similar to the way games subsidise the cost of console hardware. When the iPod launched, MP3 was the dominant format. Apple would have faced a fairly tough struggle if it had only supported AAC at the beginning. In contrast the Apple TV is a little sniffy about the video formats it will playback. Maybe it’s a deliberate move by Apple to push people towards its paid for content. If you’ve got to spend hours converting video files you’re found on the internet before they’ll playback you might be more inclined to just give in and pay for the convenience.

Will Head