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Wall Street views new Apple TV as small step, not living room revolution

While the new Apple TV was given the coveted "one more thing" slot in Steve Jobs' keynote Wednesday, the product will "continue to play second fiddle" to the iPods that were introduced, analysts on Wall Street believe.

Apple was busy at its media event on Wednesday, introducing a number of products including an updated iPod touch with Retina Display and forward-facing camera, dramatically redesigned iPod nano with multi-touch display, new iPod shuffle with buttons, and a cloud-centric $99 Apple TV. On the software side, the company also announced that iOS 4.1 is coming Sept. 8, iOS 4.2 will add wireless printing and AirPlay in November, and also released the new iTunes 10 with the Ping social music network.

By and large analysts on Wall Street came across pleased with Apple's new product lineup, which they think will be a strong seller this holiday season.

Needham Research

Analyst Charlie Wolf said he believes the highlight of the event was the iPod touch refresh, which added front and back cameras and a microphone to the portable media player, along with the A4 processor and Retina Display previously found in the iPhone 4.

He also noted that the price of the Apple TV was drastically reduced from $229 to $99, while TV rentals will now cost 99 cents. Despite these pricing changes, Wolf believes the Apple TV will remain a niche product among Apple's strong lineup.

"In our opinion, however, Apple TV will continue to play second fiddle to the iPod, iPhone and iPad," he wrote.

Wolf has maintained his price target of $375 for AAPL stock with a buy recommendation for investors.

Piper Jaffray

The new Apple TV is a "step in the right direction," analyst Gene Munster said. He has long believed that Apple will inevitably release a full-fledged connected HDTV set.

Munster believes Apple has been selling about 400,000 Apple TVs a year. He expects sales to nearly quadruple, to 1.5 million in fiscal year 2011, adding $50 million in revenue.

"We see the new Apple TV as a meaningful change in Apple's efforts in the digital living room," he wrote. "The addition of new content, such as Netflix, in combination with the $99 price (down from $299) will drive higher unit volumes compared to the previous version of Apple TV." However, he noted that the system is still "light on content."


Though the new Apple TV doesn't run App Store software like other A4-powered devices, analyst Yair Reiner sees the new product as strengthening the presence of iOS in the living room for another reason: AirPlay. Apple's upgraded wireless media streaming technology will allow users to stream videos and photos from their iPhone, iPad or iPod touch to an HDTV connected to the Apple TV.

"The new Apple TV, while unlikely to move Apple's bottom line much, is poised to provide iOS a growing foothold in the family room, a development that could open the door to further long-term opportunities while also boxing out wold-be rivals such as Google," Reiner wrote.

The analyst also said the iPod touch "graduated" from being a game and media device to a full-fledged social media service. And he believes Apple gave users the best reason to upgrade their iPod nano in years.

"Most of the cats had snuck out of Apple's bag in the weeks prior to today's iPod event, but that shouldn't obscure the bottom line: Apple has let loose some mighty cool cats," he wrote.

Gleacher & Company

Though the Apple TV is a "dramatic improvement from its 2006 origins," analyst Brian Marshall said, he's still waiting or a device that runs iOS and allows users to run applications in the living room. He does agree with Apple, though, that the future of content will be rentals instead of ownership.

Marshall heaped praise on Apple's new Ping social media service, which he believes could drive increased content purchases through the company's product ecosystem. Particularly, the 160 million active credit card users make a great starting point for the company's social networking initiative he said.

"While we were impressed with the iPod and Apple TV refreshes, in our view, Ping stole the show and represents AAPL's maiden voyage into the uber growth world of social networking," he said.

Still, Marshall thinks the single most important factor for Apple in the next 12 months is the international ramp of the iPhone. He also believes that 70 percent of the company's gross profits in calendar year 2011 will come from two products: the iPhone and the iPad.

Kaufman Bros.

Analyst Shaw Wu called the Apple TV announcement "underwhelming," and said that the new product will remain a "hobby" for the Cupertino, Calif., company. He said the product feels like a "work in progress" due to its limited features.

"The main capability we were hoping for was the ability to run apps from the iTunes App Store and it looks like AAPL decided to leave this out for now," he wrote.

But because the new device runs the same A4 processor as the iPhone, iPad and iPod touch, he said it "should be fairly easy" for the company to add the App Store to the new product in the future.

Wu also said he found the iTunes Ping social media service to be the "most intriguing" announcement Wednesday. He believes the addition will make iTunes even more successful by having it serve as a hub of interaction for people to connect with friends and recording artists.

"Today, users to go Twitter, YouTube, Facebook and MySpace to follow their favorite artists," Wu wrote. "With Ping, it is simply easier."