While the iPod, iPhone and MacBook catapulted Apple into the ranks of the Fortune 50, sales have leveled off somewhat and for the company to continue being a cash-generating machine, it will need new technologies -- a key one being an industry-changing flat-screen TV.
Apple rose to the top of the ranks of the Fortune 50 on the success of the iPod, iPhone, iPad and MacBook, but to continue being a market leader, it needs new products.
Of the two products that Apple is believed to be working on -- a smart watch and a television -- a flat-screen TV has the potential to add billions in revenue to Apple's bottom line, according to a report from U.K.-based Generator Research.
The report predicts that Apple should be able to garner about 22% of the TV set market over the next 10 years.
Apple's market capitalization is around $473 billion. In order to maintain a market valuation approaching its market cap, Apple needs new products.
"Unless you make completely crazy assumptions about how fast sales of the iPhone and iPad will rise... then the only way you can get to a valuation that is close to the company's market capitalization is to assume that Apple will launch new products -- products that do not exist," Andrew Sheehy, a chief analyst with Generator Research, wrote in the report.
Sheehy said achieving a 22.2% television set market share by 2023 is less than what the company has already managed with the iPhone.
That 22% market share would translate into 72 million television units worth about $81 billion in revenue, Sheehy added. By comparison, Generator Research predicts a smart watch from Apple would achieve about $40 billion in revenue by 2020, and would level off after that.
Apple's worldwide revenue projection (Source: Generator Research).
In 2015, Apple's television unit sales would be around $2 million, representing a 0.7% share of total worldwide flat panel TV set shipments. However, shipments would then grow to reach 15 million in 2017 (4.9% market share) and 72 million units in 2023 (22.2% market share), according to Generator Research.
A market in turmoil
The global TV set market is expected to see its second consecutive annual decline in 2013 due to a slowdown in replacement and secondary purchases, according to Veronica Gonzalez-Thayer, an analyst with IHS Electronics & Media.
For Apple to attain a significant share of the TV market, the company would have to create demand through a unique product so that consumers would be willing to replace their existing sets or buy an additional one.
"Still, we would expect for this television to sell for a premium price, which could become an obstacle for Apple since the TV market is extremely price sensitive and has been suffering from declining margins for a few years," Gonzalez-Thayer wrote in in an email reply to Computerworld.
The television market is shifting from one dominated by Japanese companies, such as Sony, to South Korean companies, such as Samsung, Generator's report states.
"And in spite of assurances to the market that better times are ahead, Sony's TV set business continues to operate at a loss -- as has been the case for the last 8 years," Sheehy wrote in the report.
As Samsung's share of the worldwide TV set market grows, the company achieves two benefits: Increased profitability for its own business, allowing it to further invest in new products to maintain its competitiveness.
"The market is now locked into a state where it is almost a 'winner takes all' scenario: the further the pendulum swings in favor of Samsung, the harder it will be for rivals to pull it back," Sheehy wrote.
To be successful, Apple's TV set could not be a stand-alone product. To have mass appeal, Apple would need to offer expanded, exclusive content, tight integration with PCs, Macs, the iPhone and iPad and a new version of iTunes optimized for TV. The TV hardware itself would also need to be innovative in some way, perhaps with its resolution, Sheehy said.
A comparative marketshare between the iPhone and an Apple television set (Source: Generator Research).
Gonzalez-Thayer agreed that Apple will not be able to hang its hat on hardware alone since most of that will become standardized. Instead, Apple must develop new services.
"Most importantly, the integration with pay-TV services or an alternative and equally valuable video service," Gonzalez-Thayer stated. "Nevertheless, we expect for this potential Apple TV set to contain the most advanced features, great display and most likely some use of advanced controls (voice, gesture and/or motion commands)."
Apple's current television product is a set-top box called Apple TV, but as Sheehy notes, "it's not a transformative product" and its sales have been average at best.
To garner market share in the already mature flat-screen arena, Apple would need to do what it did with the iPod and iPhone, according the report. It took existing products -- an mp3 player and a mobile phone -- and carved out its own niche market.
To Sheehy, two obstacles remain to Apple's achieving a significant television marketshare: Tim Cook may not be the innovator that Steve Jobs was, and Apple needs content that separates it from the pack.
"I would not just expect to see an improved version of iTunes (optimized for use on a TV set) but a range of new content as well. This would require Apple to close a range of new content licensing deals with studios and TV networks -- to an extent that would catapult the company ahead of key rivals, such as Netflix and Hulu," Sheehy wrote.
Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed. His e-mail address is email@example.com.
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This story, "Apple needs 22% of TV set market to stay on top" was originally published by Computerworld.