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Apple's Minor MacBook Move (PC Magazine)

Comments: 0 | Category: Apple | Date: Thursday, 16 October 2008, 11:41

Dan Costa - PC Magazine

Amid the typical flood of leaks and rumors, Apple announced new MacBooks, MacBook Pros, and a MacBook Air in Cupertino this week, although the mysterious code name "Brick" had people speculating that the company would release everything from a next-gen Newton to a "me-too" netbook. What we wound up getting was a collection of modest, incremental improvements to existing products. Mac lovers will love them, because that's what Mac lovers do. For the vast majority of mainstream users, however, Macs will remain just a bit too expensive. Clearly, Apple is okay with that.

First let's look at exactly what Apple did this week. You can get the full story here, but I came away with a few take-aways. For instance, there's a cool new die process that forms the laptops' "unibody" out of a single piece of aluminum. Also, the entry-level price of the existing—white plastic, and therefore less-cool looking—MacBook drops from $1,099 to $999 (at least until they run out of inventory). And there are a few minor technology upgrades: the glass, multi-touch, gesture-based trackpad; a mini-Display port; and faster graphics.

My response to all this is "So what?"

Now I have to tell you, I'm as interested as any geek about how stuff gets made. And the idea of taking a 2.5-pound piece of aluminum and tooling it into a single rigid laptop chassis is pretty cool. (I hope PCMag's man-on-the-ground in Cupertino, Cisco Cheng, managed to snag one of the frames passed around in the crowd at the announcement.) But in terms of profit margin, market share, and even plain old innovation, none of these changes, are, well, game-changing.

Apple's moves must be put into context. People tend to think of iPods when they think of Apple these days—as they should. The company dominates the MP3 player realm, enjoying more than 80 percent market share. The iPhone still has far to go to achieve that kind of success in the smartphone business, but it's off to quite a start. Sure, the iPod has been a tremendous cash cow and the iPhone clearly represents the future of portable music and communication. But the thing is, right now, it's Apple's PC business that generates most of its revenue. That's where the company should try to grow its market share. As a PC maker—and I do consider them a PC maker—Apple still only has a relatively small slice of the market.

Just 8.4 percent of the domestic U.S. market according to Gartner. Only 8.4 percent. Of course, Apple's mindshare is much larger than that. For that matter, so is its penetration in the typical Starbucks coffee shop. So this fact comes as a surprise to many people. But let me follow it up with a bit of supposition: Apple doesn't care.

Apple simply doesn't sell cheap PCs. Sure, the Mac Mini is an affordable little system, but how many of those do you see around? Apple doesn't care about market share because it's remarkably profitable for a PC company.—Next: Last Quarter >

Last quarter, Apple achieved a 36.9 percent return on every dollar of sales. Dell, the company that once set the bar for profit margins, could only manage 18.3 percent. HP did 24.7 percent. In part, this is because Dell and HP sell a lot of cheap PCs. They get the edge in volume, but Apple seems pretty happy with its small, very profitable slice of the PC pie. The thing is, change is coming, and I'm not talking about the presidential election. Two factors should force Apple to change strategies. (Or as John McCain would say, change "tactics.")

First, the economy, in case you missed the news, sucks harder than Sarah Palin's interviews with Katie Couric. Apple's cheapest notebook before this week's announcement was priced at $1,099. That was cut by a measly $100. Even at $999, it's still a lot higher than competing products from Acer, Dell, or HP. Dropping the price to $800 would have certainly sold a lot more systems. Would it kill Apple to cut margins just a little bit further in order to make its systems a little more affordable to mainstream America? (Clearly the political campaign is getting to me.)

The second trend: the growing popularity of the netbook. Truth is, netbooks more than fulfill the needs of many casual users, and they're perfect as second systems for desktop PC owners. It's a burgeoning category, but expectations are very high among the manufacturers I've spoken with. And netbooks don't just undercut MacBook prices—they halve them. The MSI Wind sells for just $450, and the Lenovo S10 starts at $399. Yes, I would prefer a slick and slim MacBook Air, but for the same price I can buy four Lenovo S10s, and still have some cash to spare.

When it comes right down to it, PCs are a margin and market share business and I don't see Apple's moves changing either of those substantially. Maybe my expectations are just too high. The iPod, the iPhone, and even the App Store were transformative. Nothing announced this week rises to that level of importance.

Unquestionably, the most dramatic thing Apple could have done was cut prices. The current economic climate begs for it, but the Mac maker is going to stand pat and rely on Vista's struggles, brilliant marketing, and its customers' willingness to pay a premium for design. It's a strategy that has worked, at least in terms of profits. Just don't expect to see new Macs under many trees this holiday season.

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