Photo: Illustration: Ellis Hamburger
Apple’s entry into the TV market is “imminent,” says Jefferies analyst James Kisner.Kisner talks about Apple TV in a note about Arris, a cable tech company.
“Our discussions with industry contacts suggest that at least one major N. American MSO is working to estimate how much additional capacity may be needed for a new Apple device on their broadband data network. We believe this potentially suggests an imminent launch of the Apple TV,” says Kisner.
What’s interesting about this wording is that it suggests Apple is going to be doing something over broadband, as opposed to normal cable.
Treat this report with some caution. In August, Jefferies analyst Peter Misek said an Apple television was already in production. For what it’s worth, Misek covers Apple, Kisner covers a bunch of other stuff, like cable tech and telecos. So, he’s approaching the Apple TV from a different angle.
We’ve been hearing about an Apple television for a long time now. The big problem for Apple seems to be figuring out how to get cable companies and content companies on board. This isn’t like launching the iPad, where Apple just makes a tablet and then developers build apps.
Content makers have restrictions in their deals with cable companies on their content, which could limit what Apple would like to do. Apple has to negotiate with both groups simultaneously to crack the TV market.
And, even when Apple figures that out, the TV market is not like the smartphone market. People aren’t going to buy a new TV every year, or every other year. So, anyone looking at Apple attacking a huge new market, should temper expectations.
Here’s what he had to say:
…our discussions with industry contacts suggest that at least one major N. American MSO is working to estimate how much additional capacity may be needed for a new Apple device on their broadband data network. We believe this potentially suggests an imminent launch of the Apple TV, a positive development for ARRIS, who is directly exposed to data traffic growth from incremental IP video streams on cable networks.
In Chart 10 below we examine the potential impact of an Apple TV launch at Arris’ biggest customer, Comcast (CMCSA, $35.40, Hold) (Here we’re talking about an unannounced product, not the Apple TV product that is currently available). It’s important to understand that network capacity is largely engineered to peak traffic levels – thus we’ve based our analysis on what peak data consumption might be based on 50% of Apple TV users watching an HD video stream all at once (this might realistically happen on a Friday or Saturday night). We then translate the incremental data usage to incremental port requirements (each port maps to roughly 40mbps of capacity). Our conversations with industry contacts have suggested in the past that Arris has over 50% of Comcast’s CMTS footprint – thus we assume 55% of the port shipments go to ARRIS. Finally, we assume that these port shipments come at 45% contribution margin; given the relatively high gross margins and software content on the CMTS business, we believe this is realistic. Depending on the unit assumptions, we arrive at an EPS impact of $0.07 – $0.40 for Arris from an Apple TV launch at Comcast. We note that Jefferies analyst Peter Misek is forecasting Apple TV unit sales of 4.9 million units in CY13 and 11.6 million units in CY14. These estimates assume an actual Television product (not a “puck” like the current Apple TV).
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