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Does This News Kill a Possible Apple iTV?

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Apple's (NASDAQ: AAPL  ) future product lines are always a matter of great interest for a few reasons. For starters, as one of the most forward-thinking companies in tech, Apple holds a certain role of taste maker du jour for much of the consumer electronics industry (case in point here, or here). Beyond that, Apple's highly controlled product development and launch tactics are, like it or not, to get as many people talking about what Apple will do or has just done (case in point, this article).

As flagging growth concerns have hampered Apple's shares in the past two years, the company's CEO, Tim Cook, has stated publicly that the world's largest tech company will launch at least one new product line in 2014. Keeping the above intro in mind, this has, as you might expect, driven many of us in the media and finance community to speculate as to exactly what product(s) Apple has up its sleeve.

For a number of reasons I won't get into here, an advanced smartwatch seems like the most sensible bet as the next addition to Apple's product portfolio. However, the possibility of Apple releasing its own dedicated smart TV, colloquially the iTV, has also garnered ample attention, as well.

However, one recent report shot down the notion of the iTV, and that, as it turns out, might be a very good thing for Apple and its shareholders.

iTV: Gone before it even got here?
Former Wall Street Journal tech reporter Yukari Iwatani Kane has been generating plenty of buzz for her recently released book chronicling Apple in the post-Steve Jobs era, some of which, if true, is highly relevant to understanding Apple's product pipeline.

According to Kane, Steve Jobs responded a flat "no" when he was asked by a top employee whether or not Apple planned on releasing its own software-integrated HD television set, or the iTV. The late Apple co-founder and CEO then went on to note exactly why that would be the case: "They don't turn over and the margins suck." 

This storyline seems a bit at odds with Walter Isaacson's authorized autobiography on Jobs, in which Jobs was reported to have famously claimed he'd finally devised a solution, or "cracked the code" for Apple in the television market. Many, myself included, took this to mean that Apple would eventually enter a market that many still see as ripe for improvement.

However, fast forward to today, and we're still without a full-scale iTV. Maybe it's time to take a hint...

Good idea, terrible industry
If we're trusting Kane's reporting, Apple electing to not enter the TV market could be both a blessing and a curse for Apple investors.

In a negative sense, this certainly precludes Apple from pushing into a sizable revenue growth opportunity. Apple's shares have lagged the broad market in the past year or so, in no small part because of concerns about the company's growth. Not moving into another multibillion market certainly won't help quell those concerns, which could keep Apple trading at compressed multiples.

However, on the other hand, an Apple smart TV certainly could have done more financial harm than good. As the Jobs quote above also references, the global TV market's economics, in all honesty, well, suck. Generally speaking, televisions are low margin, long-lived devices that still must deal with rapid technological change. It's a recipe for financial trouble waiting to happen, which is why even the world's largest players in the space can struggle to break even.

And for those keeping score at home, just breaking even isn't Apple's usual forte. But from the looks of it, Apple is already shifting its sights to a far better opportunity in the emerging smartwatch space. This is  another multi-billion dollar market with vastly superior margins than the television space; therefore, gravitating toward the smartwatch market seems an eminently more ideal use of Apple's resources than developing a smart iTV.

The day may come when Apple acts otherwise. Only time will tell. However, from what we know right now, Apple appears to be in a sound place to make good on its promise of launching at least one new product this year, which should ultimately be music to its investors' ears.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 23, 2014, at 3:37 PM, HiramWalker wrote:

    Nothing Steve Jobs said was ever written in stone. He said firmly whatever he thought at the time, but his mind could be changed by others with persistence and conviction, and he could change it himself as technology, society, and markets evolved.

  • Report this Comment On March 23, 2014, at 4:41 PM, fauxscot wrote:

    -50 points for Kane mention. Speculation and title-based exploitation of the term "Apple".

    A well-known and highly credible expert, a gent by the name of Cook, pretty much put her guesses in the Tank of Irrelevance.

    The way to predict Apple is to wait and see what happened. It sure isn't to buy into 1/2 page guesses with billion dollar implications from outsiders with no more evidence than the rest of us.

    And.... Jobs is no longer with the company. He handed it off to Cook, who seems to be doing just fine without him. As a shareholder, I am satisfied. As a speculator, of course, I am not, but that's what the lottery is for.

  • Report this Comment On March 24, 2014, at 4:01 PM, VanProo102 wrote:

    Who cares what Jobs said? He's dead and not running the company any more. He also was adamantly opposed to an 8" tablet and now it's a top seller.

  • Report this Comment On March 25, 2014, at 5:42 PM, Rod wrote:

    Apple will launch an upgraded set top box Apple TV in the near future, it will include everything, except TV itself.

    If such product were to be launched at $199, with a margin of 33% and sales of some 20 million per quarter it may yield an additional 1.3 per quarter per share

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Andrew Tonner

Andrew Tonner is a tech specialist for The Motley Fool. He is a graduate of The University of Arizona with a degree in Finance.

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