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Engadget editor Joshua Topolsky said the information came from a tip and was confirmed by a source "very close to Apple." The new hardware will reportedly have just 16GB of storage, but will be capable of full 1080P HD video.
"Not only will this be priced to sell (like hotcakes), it seems that Apple is moving away from the model of local storage and will be focusing the new ATV on cloud-based storage (not unlike Amazon's streaming scheme, though we're talking instant-on 1080P, a la Microsoft)," the report said. "For those still interested in keeping their content close, there will be an option to utilize a Time Capsule as an external storage component, but the main course will be about streaming."
The new hardware, said to be small with only a power plug and video out, was described as "an iPhone without a screen." Sources could not say whether or not the new hardware would be compatible with software from the App Store, though Topolsky noted "it makes sense given the shared platform."
Engadget reported that Apple will not announce the new hardware at the forthcoming Worldwide Developers Conference, but the development is currently "full steam ahead."
The project has allegedly been in development since long before the Google TV was introduced last week. Google's offering will run on the Android operating system, and will be integrated in set top boxes as well as on HDTV hardware itself from major manufacturers. Google TV, which will run applications from the Android Market and stream Internet video, is scheduled to be released this fall.
Currently, the Apple TV costs $229 and comes with 160GB of storage. Last September, Apple discontinued the low-end 40GB Apple TV.
The set top box software was updated last October to Apple TV 3.0. The update added a redesigned main menu that aimed to make navigating content simpler and faster. It also allowed useres to watch iTunes Extras and iTunes LP content in full screen on their TV.
However, the software update failed to boost sales for the device, and Apple executives maintained their position that the Apple TV is simply a "hobby" for the Cupertino, Calif., company. In February, Chief Operating Officer Tim Cook said the set top box market does not compare with the other categories in which Apple competes, particularly media players, smartphones and computers.
Engadget's rumors would suggest that Apple would continue to sell the product as a set top box, while Google TV will be integrated with some HDTVs starting this fall. But analyst Gene Munster with Piper Jaffray has long believed that Apple could release its own connected HDTV, with Apple TV functionality built in to the device, in the next 2 to 4 years.