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1. A Market Segment Analysis | Apple Television (iTV)
Introduction: R2 Labs is a leading provider
of research and strategy consulting
services to many of the worlds most
recognized brands including the leading
institutional investors and equity capital
fund managers, the top global strategy
consulting firms and institutions, as well as
global enterprise leadership teams across a
wide range of industries and verticals.
Services include operations, technology Get Started
and strategy consulting, management and
decision sciences, and market segment
and information technology research
advisory services.
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2. Apple + Television
A PLATFORM FOR INTEGRATING, ALIGNING & MANAGING A PERSONAL APPLE ECOSYSTEM
ATV + iCloud + Retina Display = Apple Television (iTV)

3. I'd like to create an integrated television
set that is completely easy to use. It would
be seamlessly synced with all of your
devices and with iCloud. It will have the
simplest user interface you could
imagine. I finally cracked it.
- Steve Jobs to Walter Isaacson

4. Imagine a 40 or 50-inch iPad, a system that
understands voice commands, using Apple's new Siri
virtual assistant, and spares you the trouble of fumbling
with a clunky remote that always gets lost between the
sofa cushions. If you want to watch an obscure movie,
or play a game, or record the Titans game on Sunday,
ask and the system will find it. No more finding the
buttons to switch manually between video sources; the
TV will put it on the screen for you. Anyone who
manufactures a high-end TV will get hammered.
- Gene Munster, Piper Jaffray & Co.

5. Elements
Introduction
Apple’s iTV Ecosystem, News & Risks
Smart TV Demand
Connected TV Shipments vs. US Smart TV Shipments & Forecast
R2 Estimates for Production Volume & BOM Costs
US Smart TV Adoption Curve & Apple’s Entry Point
Ramp Up & Production Forecast
Retina Display Cost
Smart TV Manufacturing Trends
Shoring Up Materials
R2 Questions?
Levels of Production Integration, Installation, Content, etc.
R2 Next Steps for iTV & Apple Computer?
Robotic, Automobiles, Utilities, Defense & other Industry Penetration?

6. iTV Ecosystem
Revolutionary in terms of its Human Interface
Siri (‘The simplest interface you could imagine’ - S. Jobs)
Retina Display (‘With a 2880-by-1800-pixel resolution, the new MacBook Pro
has 3 million more pixels than an HDTV’ - Apple on Retina Display).
Formfactor - a mix of Art, Design & Technology

7. iTV Ecosystem
Designed by Apple in California

8. iTV Ecosystem
A Better Entertainment Management System
Steve Jobs’ ‘Best of TV’ Bundled Programming
OTT Content (Hulu Plus, Netflix, etc.)
Version 2.0 of Internet Channel Integration (Facebook,Youtube, etc.)
A Game Portal (140K US Game Publishers, 750K Apps as of March 12, 2012)
Apple Programs (Garageband)
Games (Apps)
Massively Multiplayer Online Role-playing Game (MMO)
iTunes U (Education Integration)
Colleges & University Course Integration
Continuing Education, Government Services & Professional Ed. (Lynda.com)
Local content delivery: High Schools, Religious, Programming
Apps for Productivity Management
Energy Management Services Integration (Nest.com’s Smart Thermostat)
Realtime Consumption Management & Control
Home Security & Surveillance
Other Distributed Control & Management of Home Systems & Services

9. News
Foxconn has Received Apple TV Orders: Currently in Pilot Production, May 28, 2012
Sources told Business Daily, Fuji Kang Longhua factory in Shenzhen has
received orders for the Apple TV currently in trial production.
Apple Stalls Apple TV Shipments, Feb 29, 2012
Partners and channel members have seen Apple push back deliveries each
consecutive week by one additional week -- a practice that almost always
foreshadows a formal discontinuation of a product ahead of new models.
Likely for A5X for greatly expanded set-top box functionality, namely AirPlay
which allows users to mirror their Mac display on an HDTV.
55" Apple LCD TV for About $2,000 Seen as Matter of 'when,' Not 'if' Jun 1, 2012
Gene Munster with Piper Jaffray sees Apple's full-fledged television set retailing
between $1,500 and $2,000, with screen sizes between 42 inches and 55
inches. Such a product would add between 4 and 8 percent to Apple's
calendar year 2013 revenues, he believes.

10. News
Apple's focus on display tech is driving it to make an HDTV, July 14, 2012
Raymond Soneira, CEO of Displaymate Technologies believes Apple will
continue to adopt Retina across all "premium" products, including the Apple
TV. But it's less about the intrinsic Retina technology than it is about
consistency, he believes.
Apple is said to have selected a key supplier for television set, Feb 17, 2012
Genesis is reportedly expected to supply LED chips to LCD panel maker Sharp
for Apple's anticipated television.
The partnership between Sharp and Genesis is expected to grow in 2012, as
Genesis is said to have received certification for its LED chips. That could
pave the way for Genesis to be a crucial component in Apple's rumored
television set lineup.

11. Risks
Production Capacity & Material
Wage Pressure at Foxconn / General Unrest in China
Display Quality (Yield & Lead Times)
Data Delivery / Infrastructure Bandwidth / Capacity Limitations
Cable Usage Based Pricing
Premium Price In Excess of 300G/Mo
Consumption is Accelerating esp. for Households w/ Multiple Streams
Local (In-the-home) Storage (Movie Watchers need 2TB Min)
Premium iCloud Storage Upgrade Options (5GB Free) $10 for Additional 5GB.
Country & Political Risks
Cable Country Infrastructure: International Level of Service Downloads?
Great Firewall of China (and now Russia, etc.)?
Competitive Risk
Not Open Source Like Some Competitors, ‘getting locked in’.
I’d Rather Own Than Rent?
Preplanning Aspect of What to Watch?
Game Console Compatibility & Experience?
Is It ‘Green’ Enough?

12. Risks
Market Demand
“’Smart TV’ has not achieved the consumer acceptance or market
expectation… that was forecasted over the last couple years. In addition,
consumer spending for Smart TV’s in general has experienced a significant
slow down as the economy has slowed. Our current strategy is to stay
involved with the various technology developments and consider them in the
future as they become available.” - Viewsonic on Boxee-powered Smart TV

13. Total Connected TV Shipment Estimates
Total Connected TV Shipment Est. 30% Compound Annual Rate
300 270.2
225 207.87
Units
159.9
(000) 150 123
94.61
75
2013 2014 2015 2016 2017
Source for Total Connected TV Shipments: Display Search (30%, 123M for 2014)

14. US Smart TV Shipment (Est.)
US Households w/ at Least One Internet-Connected TV (Actual)
Smart TV - Connected via a video game, Blu-ray player, an Apple TV or Roku set-top box and/or the TV set itself.
70%
52.5%
38%
35% 30%
24%
17.5%
2010 2011 2012 2013 2014 2015 2016
Source: Leichtman Research, US Smart TV Shipment Estimates 2010, 2011 and 2012.

15. US Smart TV Shipment Estimates & Apple Entry Point
US Households w/ at Least One Internet-Connected TV (Actual)
Projected 12% Growth
Projected 15% Growth
Projected 25% Growth
70%
52.5%
38%
35% 30%
24%
17.5%
Source: Leichtman Research, US Smart TV Shipment Estimates 2010, 2011 and 2012.
2010 2011 2012 2013 2014 2015 2016
Smart TV - Connected via a video game, Blu-ray player, an Apple TV or Roku set-top box and/or the TV set itself.

16. R2‘s iTV Production Forecast
R2’s iTV Production Forecast, 6.26M Units (2013)
12% 15% 25% R2
70
52.5
Units Shipped
(000)
35
17.5 16 16
14
11
6.62
2013 2014 2015 2016 2017
Source for Apple Shipments: R2 (7%, 8%, 9%, 2%, 2% = 28% Marketshare by 2017)
Source for Total Connected TV Shipments: Display Search (30%, 123M for 2014)

17. iTV
$1,999
Estimated Average Selling Price
$1,499
*BOM Cost $64.00 $999
$599
$99
Apple TV* Mac Mini LED Cinema 27” iTV 42” iTV 55” Cinema

18. R2‘s Retina Display Cost Estimate for 42” & 55” Retina Displays
@ 75% Discount
$666
Extrapolated Retina Display Cost
@ 75% Discount
$388
$160
MacBook Pro w Retina Display iTV 42” (753.79sq) iTV 55” (1,296sq)
14.3x5.44 = 77.79 sq

19. Smart TV Manufacturing Trends
Shoring Up Materials (Competitive Demand) for Tablet Components & Displays
Supply Chain Execution; ‘Blocking & Tacking’
Apple's television set will most likely feature an LCD screen, rather than next-generation
OLED display technology
OLED panels remain too costly for large screen sizes for Apple to adopt.
Increased Application of 3D Simulation Technologies
All Industries including Manufacturing Design; Simulation; Speed to Market.
Japan Culture Change w/ Respect to Collaboration w/ China
Sharing of Design Competencies w/ Foxconn; Tablet Display Yields, Quality.
Enterprise Spending on Tablets
Enterprises Forgoing new PC’s for Tablets?

20. Questions
Level of Physical Product Integration?
(ATV + Apple Extreme + iTV + Cinema Display)
Content Offerings
Version 1.0 Same as Current Content Offerings?
OTT Transactional V Subscription Model?
(iTunes Store, Amazon, etc.V Hulu Plus, Netflix)
Will Additional Server Platform Connectivity Be Integrated or Recommended?
Airplay likely, Additional Connectivity Unknown? (e.g. Apple Extreme)
Delivery & Setup Partners
Apple Experts?
Separate Apple iTunes Store for iTV?
Separate Games, Music,Video & other Content?
Interaction with iTV?
All Apple Devices, Siri, Motion Capture Built into the Display?

21. iTV 2.0
iTV for the Enterprise, Small Business, Non-Profit, Education & Government
Display Marketing Industry Penetration
Local content delivery: High School Programming
College & University Courses
Government Services (Voting, DMV, Taxes, etc.)
iTV for Virtual Lifestyle Management
Professional Certifications and Professional Training (Lynda.com)
Refined Internet & Social Channel Integration (Facebook,Youtube, etc.)
Financial Service Portals
Bundled Programming
Unbundled Channels and More Options?

22. Next for Apple Computer?
Apple Entering the Robotics Space?
A new category, substantial innovation, leveraging Apple’s intuitive interface
which now includes Siri, knowledge and brand influence, and competencies in
engineering, design, software development and manufacturing.
E.g., Nest, Extending Apple into Energy & Appliances
Smart Cars Connected to the Internet
Global OEM connected car system penetration is expected to increase from
11.4% in 2012 to 60.1% in 2017. While penetration in the US and Western
Europe will exceed 80% by 2017.
Energy & Utilities Management
(Nest Thermostat, water usage, etc.)
US Manufacturing
Incentives to near-shore manufacturing? Higher Political Risks Abroad? Energy
Costs? Economic Labor Benefits at Home? Risk Management.
Internet Security & Apple’s History of a Strong Defense
Multi-Industry Security?

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