When Apple CEO Steve Jobs called Apple TV a "hobby", he wasn't kidding.
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.
Having taken it apart, iSuppli estimates that the components and materials used to make Apple TV cost US$237. Since Apple sells it for US$299, that would leave a gross profit of US$62, or about 20 percent, before marketing costs.
Big departure
That would be a big change from Apple's penchant for gross margins in excess of 50 percent outside its computer lineup. That's been the usual case with the iPod music player family and appears to be the case with the iPhone, the release of which is now less than four weeks away.
Apple TV's slimmer-than-usual gross margin is also interesting when set against the fact that Apple plans to book the associated costs and revenue over a two-year period. So for every Apple TV sold, the company will split the revenue into chunks reported over eight quarters, at a rate of US$37.375 for each period. Dividing iSuppli's cost calculation similarly, US$7.75 of that total will be profit.
"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.
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