Will Apple Launch an Integrated TV?

Analysts have been speculating on a fully integrated Apple television for close to two years, and have convinced themselves it is inevitable.  Just this week, there are new reports on testing at Foxconn.

However, as a long-time observer of Apple, I still am not a believer. I am convinced they will evolve their hockey puck sized Apple TV set-top box into something much more revolutionary than what is there today, but I am not convinced it will be a fully integrated TV. Here’s why:

1. Obsolescence: TVs have a life cycle of 5+ years – much longer than the innovation cycle of Apple’s phones, tablets and computers.  Apple has been reinventing AppleTV once a year, similar to their other products. It makes more sense to implement Apple’s vision through a separate (and hardware upgradeable) set-top box or external module that plugs into the back of a TV (flushly mounted since these need to fit on walls). The interface will evolve, and new hardware (including faster processors) will be needed

2. Sizes Matter: TVs are sold in a wide variety of sizes, and Apple is all about limiting the number of SKUs and simplifying the customer decision. iMacs, MacBook Pros, MacBook Airs, IPhones and iPads all come in only two sizes each, and the Mini comes in only one. Yet TV demand covers 32in, 40in, 46in, 55in, 65in etc. – picking only two would mean large portions of demand would go unsatisfied. Not to mention variations for HD, 4k-HD, etc.

3. Boxes too big: TVs come in boxes that are large, and Apple’s Retail Stores are all about $/sq ft in very expense retail space. There is not enough room in the backroom of Apple’s current stores to accommodate enough inventory to satisfy daily demand – particularly if the TV comes in multiple models/sizes and variations for HD, 4K, etc.

4. Margin Disconnect: TVs are a commodity business. It is questionable that Apple will convince consumers to buy them in large numbers if Apple slaps on the margin that they are used to realizing. And if Apple accepts something closer to the razor-thin margins prevalent in the TV industry today, analysts will rebel.  It would be so-unlike Apple to sell at anything short of a huge margin

It certainly is possible that a version of Apple TV could be licensed and embedded in TVs made by others, just as Google TV, Netflix, Hulu and others have done, but if the implementation is only in software then such an architecture might be limited compared with the track Apple is on now with its AppleTV hardware device.

So while I am not surprised that Apple is experimenting with TVs in its research activities, I think it will be a long-time before we see anything Apple in a TV that is not co-branded with a manufacturer that is currently selling TVs. In the meantime, please bring on AppleTV 4^th generation set-top box (or plug in stick) with an AppleTV app store and maybe even a subscription model -- and let the fun begin! 

iPhone Lack of Lines in China – A Reason to Panic?

Last Friday, Apple stock dropped about 4% because there were no lines in front of Apple Stores in China and “only” over 2 million iPhone 5’s sold in the first two days of availability. Should investors panic? NO, and here’s my take:

1. Improved Reservation System: After last year’s riots and egg-throwing at the China 4S launch, Apple instituted a more rationale (and safer) reservation/lottery system to address that situation. So lack of lines does not indicate a lack of interest – rather it is a successful implementation of an improved approach to retailing.  People have no reason to wait in a line if it does them no good.

2. Subsidized Phone Not There: Apple’s China stores are only offering full-price non-subsidized phones, while the carrier partners in China offer subsidized phones. Understandably, the lines were at the carrier outlets not at the Apple Stores.

3. More Distribution Options: Twice as many stores, twice as many carriers now. So there are more alternatives to Apple Stores in China

4. China Unicom Pre-orders: 300,000 ahead of launch vs 200,000 for the iPhone 4S. Hardly indicative of lack of interest.

For perspective, the Apple iPhone 4 launch in US, UK, France, Germany and Japan sold 1.7 million phones combined in those five countries over the first weekend in 2010, less than the “over 2 million” iPhone 5’s that Apple sold in China this past weekend in China alone.

Hardly a reason to panic -- Analysts need to take a deep breath and think before crying “WOLF” next time.

What Will Apple Likely Build First in the US?

Apple CEO Tim Cook has announced that Apple will build one of its computer lines in the U.S. next year. Which one?

My guess is this will be MacPro for the following reasons:

1. Simple Assembly: MacPro is by far the easiest product to assemble, and requires no specialized skills. While it’s a sad reflection on our manufacturing skills in the U.S., as a practical matter most of Apple’s other products (such as iPhone 5 and to a lesser extent the iPad and iPad mini) are very difficult to assemble. Among laptops, Apple’s models are all evolving toward complex assembly designs that are more similar to iPads than computers; MacBook Pro Retina and MacBook Air are probably the most difficult to assemble, followed the MacBook Pros.  For desktops, the new iMac’s screen is quite challenging to assemble, and the whole design packs a lot into a thin package; the Mac Mini is easier but still crams a lot into a small space. In contrast, the MacPro is electronics assembly at its most basic, with no customer batteries to solder in and a large form factor which makes assembly much simpler.

2. Heaviest: MacPro is the heaviest product and comes in the bulkiest packaging -- both of which make it expensive to ship via air from China.

3. Custom Headstart: Apple is already assembling build-to-order MacPro’s in Texas (my current MacPro was shipped from Irving Texas). I suspect that a higher percentage of MacPro’s are customized compared to other models given the user base.

4. Lowest Unit Volumes: Smaller scale assembly translates to less of a cost penalty, and lower capital costs in manufacturing.

5. Made for USA: A higher percentage of demand is probably in the US compared to other computer models, making this a good model to build domestically.

6. Fatter Margins: The dollar margin is greatest, with price points starting at $2,500 but with most configurations costing considerably more -- a fully-loaded model runs $15,317 and the MacPro targets professionals who want the extra power, so they typically don’t choose the lowest-end quad core model. Higher margins on the MacPro also make it possible to absorb potentially higher labor cost.

Dipping its toes back into U.S. assembly is a positive development for Apple.  This should help mute some ongoing public criticism for outsourcing all manufacturing to China, and it should also begin to provide a small hedge again potential foreign exchange risk if China ever moves toward floating their currency. And I applaud Apple for starting in a measured way.  Bravo!