Apple TV costs nearly $240 to build and profits are slimmer, analysis finds

June 6, 2007, 1:33 PM UTC

Apple TV, Apple’s (AAPL) box that moves music and video from iTunes on a PC to the television, costs enough to build and manufacture that the profit from the sales can’t amount to as much as Apple’s used to getting, the iSuppli research firm said in a report it released today.

Apple TV costs $299 at retail, and costs $237 to build, iSuppli estimated. That makes for a gross margin of just over 20 percent. Apple’s most profitable iPods can easily be twice as profitable, and its legacy in the Mac business is that it can command margins near 30 percent for its hardware – significantly better than its competitors.

“This suggests that Apple is taking a market-penetration strategy for the Apple TV, rather than the simple profit-per-unit approach it has always used in the past,” said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. “The Apple TV itself is a very low-cost design, primarily due to its use of a trailing-edge microprocessor. At $299, some have called the Apple TV the ‘cheapest Mac.’ However, based on the minimal microprocessor performance and the application’s scaled needs, it might be better to call the Apple TV a ‘LobotoMac.'”

The market penetration strategy for Apple TV doesn’t seem to be working quite yet. It doesn’t make the list of top sellers at the online Apple Store, and CEO Steve Jobs called the box a “hobby” in his conversation with Wall Street Journal columnist Walt Mossberg last month.

Still, Apple TV is in its early days, and it’s a bit too soon to pass judgment. Jobs also said Apple will add YouTube content to Apple TV soon, a move that might increase its appeal.