'Margin challenged' Apple TV costs $64 to build

iSuppli's estimate pegs second-gen device as more profitable, but may still be a loss leader

By , Computerworld |  Hardware, Apple TV

Rassweiler also agreed that the ability to bump up the Apple TV's storage space meant Apple will add App Store functionality to the device at some point, mimicking the application purchasing model of the iPhone, iPod Touch and iPad. "Whether they do that or not is, of course, a strategic decision by Apple, but I think it really has to be coming," he said.

Even with the tight margin of the second-generation Apple TV, Apple's done a "better job" at cutting costs than it did with the original, which launched in March 2007.

The first-generation was almost certainly a loss leader for Apple , said Rassweiler, who said that the BOM was "so close" to the retail price that "it was almost certainly subsidized."

That may have been the genesis of Apple CEO Steve Jobs' famous label of "a hobby" in 2007.

"It's hard to say whether the second-generation Apple TV is subsidized," said Rassweiler, noting that iSuppli's BOM doesn't account for software costs, licensing fees, research and development, marketing and other expenses. Nor do retailers -- including Amazon.com, which sells the Apple TV -- pay the full retail price when buying them from Apple.

"It's the battle versus the war thing," Rassweiler observed. "Ninety-nine dollars was a kind of magical price to get Apple in there with all the Blu-ray players that stream Netflix, not to mention Google TV."

Google TV is an Android-derived operating system designed for set-top boxes and televisions, that consumer electronics makers such as Sony and Logitech will be integrating into their wares starting later this year.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@computerworld.com .

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Originally published on Computerworld |  Click here to read the original story.
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