3 Reasons Why a TV Won’t Restart Apples Innovation Engine

3 Reasons Why a TV Won’t Restart Apples Innovation Engine

This is a follow up piece to a post we wrote in September 2012 where we looked at the release of the iPhone 5 and what that meant for future Apple innovations.

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Apple reported Q4 earnings last week and despite having a record quarter, the company is taking some serious heat on Wall Street. Investors are nervous that Apple has lost its touch and I’ve already spoken before about how their innovation process is stuck in neutral, which led many to speculate that a Smart TV will be Apples way of digging themselves out of this rut.

 

Here are 3 reasons why it won’t:

1.        Apple’s traditional model of leaving features out for future updates won’t work with TVs

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Ask any iPhone owner how it felt to still be on 3G while the rest of the mobile world embraced 4G LTE, or how long it took until you could copy and paste something on iOS. The traditional Apple model of leaving room for improvement to spark buzz for future product launches won’t work in the TV industry. Companies like Samsung, Sony and LG are pushing the innovation boundaries of what can be achieved at an affordable price point with their new products that they release  often more than once a year. To be successful, Apple’s Gen 1 TV has to be significantly better to justify its projected premium price point, a task that will be difficult to achieve under their current strategy.

2.       Fewer consumers are willing to pay the Apple premium

www.businessinsider.com

www.businessinsider.com

Apple sold a record number of iPhone and iPads during last quarter, but their gross margin is down.  The introduction of the iPad mini and steep price discounts on the iPhone 4 and 4s were likely strong contributors to total sales and toxic to their gross margin percentage. This is further confirmed by the 13% drop in the iPads averaging selling price (ASP) since last quarter.  Apple’s drop in gross margin but strong unit volume may suggest consumers want Apple products but many prefer to spend less on discounted models rather than a premium for the latest and greatest.

 IHS iSuppli, USA

IHS iSuppli, USA

The HDTV market is maturing. According to Time, the average price of a 32 inch flat panel TV cost just $435 in 2012 compared to $546 in 2011. Every TV manufacturer wants a TV that does well in the premium market, but the reality is that all “premium” TV manufacturers also have much cheaper SKUs in stores like Wal-Mart and Target. It’s unlikely that Apple will offer a cheap TV leaving it to compete in a very tight, premium market that has lower churn rates and overall volume. Given their current issues of playing catch up in the industries they already compete in, a “me-too” TV at a premium price point simply won’t cut it.

3.       Supply chain disruptions will devastate initial demand

While I think Apple is losing its competitive edge, there is no denying that unlike any other tech company out there, new Apple products receive a huge surge in initial sales during the first few weeks of availability. Supply chain issues have caused numerous shortages with the recent iPhone 5 launch forcing early adopters to wait up to 5 weeks for their new phone to ship.

Furthermore, Apple is new to the TV industry, and it will be difficult for them to forecast unit demand compared to competitors who have been playing in this space for decades and know their supply chains like the back of their hands. While it’s likely that some will hold out for anything Apple makes, if Apple can’t get their TV into the hands of people who want them, they will lose out to competitors who have plenty of stock.

While many see an Apple TV as a savior to their current market tailspin, it’s going to take more than a premium TV to save this downfall.  With both the iPhone and iPad beginning to hit critical mass, I believe it will take a massive line overhaul of their mobile products (including iOS software)  in conjunction with a launch of a Smart TV that features a breakthrough way of accessing content that can bypass current cable providers to get Apple back to its typically stellar quarterly earnings.

- Brian Baecker

Account Manager

brian.baecker@ipsos.com

@IpsosVantis

973-658-1694

Written by Ipsos Vantis

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