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Apple Inc. (AAPL) Is Right to Abandon Apple TV Plans – Icahn is Wrong

Apple Inc. Television

Apple Inc. (NASDAQ:AAPL) put plans for Apple Television sets on the shelf last year as reported by the Wall Street Journal.  When you consider the competition and the economics involved in bringing a TV set to market already ruled by LG and Samsung, the decision makes sense.   Unlike the smartphone business, the TV business commands slim profit margins.

Apple Television
Carl Icahn wants Apple to go into the television set business but it seems the company has already decided against it with good reason.

Carl Icahn sent Tim Cook a letter earlier this week and it was chocked full projections that sounded exciting, at least on the surface.  According to Icahn, Apple Inc. (NASDAQ:AAPL) might consider selling a couple different TV set models starting with a 55-inch and a 65-inch TV set as soon as the next fiscal year.  Icahn suggests that the average price for one of these big TVs should be around $1500.  And, he expects the company to sell ten million units almost immediately – in 2016.  In 2017 Icahns crystal ball says sales could reach 25 million units.  He adds television market is huge and is worth about $575 billion, which makes the smartphone market look smallish.

However, the WSJ report seems to suggest that Apple Inc. (NASDAQ:AAPL) could not come up with compelling enough features for an Apple TV set which resulted in them abandoning the project a year back.  For example, the company wanted to add cutting-edge features like a camera to induce users to make video calls.

Apple Television Production Disadvantages

Sony Corp (ADR) (NYSE:SNE) has already faced the full effects of fierce competition in the TV business seen by years of losses that forced it to rethink its strategy. Success in the TV business comes down to a company getting it right on the display as this feature accounts for nearly 80% of the total production cost. Samsung and LG hold an upper hand on this front supplying nearly 42% of the total displays in circulation. Competing against these two companies will be the first hurdle that Apple Inc. (NASDAQ:AAPL) will have to go through if it is to become a key player in the business

The smartphone business is more viable in terms of production costs as the display accounts for only 20% of the total costs something that has allowed Apple Inc. (NASDAQ:AAPL) to scale the business with innovations. Apple’s success at capturing market share in the TV business will depend on how well it works with its competitors to procure displays.

Apple Inc. (NASDAQ:AAPL) has gained an edge in the smartphone business thanks to the unveiling of new features with a new phone each year. Replicating the same with TV sets each year is sure to be a challenge for the company; an aspect of the business that is needed in the hardware business to trigger a successful refresh cycle.

Icahn Challenges Apple on TV

Apple television plans may have been thrown into disarray after Sharp, its main supplier for displays had some financial difficulties. There may have concerns that Sharp could be challenged to ramp up display production on time, depending on how Apple Inc. (NASDAQ:AAPL) needs them.

Icahn has high hopes for a and Apple Television set and even an Apple Car even though the company has yet to confirm whether it is planning to engage in such a project. Carl Icahn is refusing to admit to the fact that the odds of success with Apple TV remain slim. The activist investor affirms that the market is a $575 billion industry even as the IDC on its part affirms that the industry generated $149 billion in revenues last year. Piper Jaffray research analyst Gene Munster has already thrown the towel, admitting that TV sets may not be what Apple Inc. (NASDAQ:AAPL) needs at the moment to expand its product line.

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Viraj loves to write and express his views on anything related to Finance, Crypto, or Fintech. He has been covering Finance & Crypto for more than five years now. He likes Tesla. He also writes on Healthcare, and Technology among other stuff.