The SB3 doesn't decode Apple lossless, so you'll definitely be doing the transcoding on the server, because it needs to send the SB3 something it can understand (eg, FLAC, WAV, AIFF). As long as your server is up to the task you should be fine. And I expect that anything except an underpowered NAS, plug computer, or ancient pc would be able to transcode comfortably.
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