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Apple iTV Is Coming – Winners and Losers Abound

Apple iTV Is Coming – Winners and Losers Abound

Apple’s iTV is coming.  Search for the term “Smart TV” and you’ll get nearly 1 billion hits, including a plethora of videos demonstrating their capabilities. Many still doubt the viability of various “smart” products (glasses and watches, among others). However, market research firm IHS iSupply predicts that smart TVs will soon represent the majority of worldwide TV sales, with as many as 100 million expected to ship next year.

For major smart phone vendors like Apple (AAPL), competing is much more than an attractive option – it’s critical. Any consumer device that can run a smart phone operating system (like Android, iOS, Windows Mobile, BB10, etc) is strategically important. Electronic devices are increasingly linked to the Internet and more importantly, each other. Failing to offer a key device potentially creates a missing link in the chain. This could lead to significant share losses in an environment where momentum defines the difference between leadership and irrelevance.

Not surprisingly, Smart TVs are slated to be a hot topic at this week’s COMPUTEX conference in Taipei (June 4-8). COMPUTEX is the largest technology trade show in Asia and second largest in the world.

With Samsung (SSNLF.PK) expanding its lead (30% worldwide share of all TVs shipped) and the market set to cross the chasm later this year, Apple needs to act with a sense of urgency.

This will have many impacts on the marketplace. For example, we’ve already heard that tertiary TV vendors are adopting (or accentuating) a low-cost producer model in order to compete with Samsung and Apple’s scale and cache. Part of this involves outsourcing aspects of R&D. Price and picture quality are keys to success, but delivering the former without outsourcing the latter has become prohibitively difficult. This, along with Apple’s technological needs, is why we’ve become bullish on Pixelworks (PXLW). Fruits of their sales efforts have already surfaced in the form of a high-end design win at LG, a key Apple supplier. This doesn’t mean that they are in Apple’s iTV, but it certainly doesn’t hurt their odds…

The Holidays Will Be Critical

Information regarding the highly anticipated Apple iTV has reached a fever pitch. CEO Tim Cook has been as tight-lipped as can be (which is telling unto itself), but ample evidence shows that Apple’s entry into the smart TV market should happen by year end. To this point, Apple’s delayed entry likely stems from its lack of TV manufacturing expertise. Indeed, Chris Moseley, Samsung’s Manager of AV Product Marketing has long doubted Apple’s ability to deliver a top-notch visual experience:

“TVs are ultimately about picture quality…and there is no way that anyone, new or old, can come along this year or next year and beat us on picture quality.”

Thus, it should come as no surprise that industry watchers expect Apple to make this a strategic strength from the get-go. This would clearly necessitate the delivery 4K x 2K (8 megapixel) picture quality. To do this, Apple will intuitively be partnering with LG for the actual panels (screens), since it has already increased its reliance on LG for iPad panels (which offer higher resolution than traditional HDTVs).

With a successful foray into the TV market, Apple will have market-moving implications for each of the incumbents. Recent market share data reveals that the market has largely consolidated around five vendors who control 65% of the worldwide market — Samsung (30%), LG (15%), Sony (8%), Panasonic (7%), and Sharp (5%).

We expect the market to continue moving toward an oligopoly, with software and scale encroaching upon price as a key differentiator. In the former regard, Apple has always demonstrated market leadership. Simultaneously, we view Tim Cook’s supply chain mastery as a potent complement to Apple’s stylist leadership. Accordingly, we expect the smart TV landscape to closely mirror that of the smart phone and tablet markets, leading to a windfall for vendors in Apple’s supply chain.

By: Mark Gomes, CEO