Apple may be eying sub-$1000 notebook market

[AppleInsider]

Investment bank Piper Jaffray said Tuesday it believes Apple is readying new iPod and notebook products that will apply downward pressure to profit margins because they'll be priced more affordably, such as 13-inch MacBook that will fetch less than $1000.

During its third fiscal quarter conference call Monday, the Cupertino-based Mac maker caught analysts and investors off-guard by guiding average company gross margin down to 31.5 percent for the current quarter ending September, and down to 30 percent for all of fiscal 2009.

Addressing clients in a report Tuesday, analyst Gene Munster said there appear to be two primary reasons for the margin guidance, which surprised even those experts who've grown accustomed to the company's traditional low-ball estimates.

First, he said, management is likely continuing with its historical practice of guiding gross margin 270 basis points (2.7 percent) below the previous quarter's actual margin. Secondly, he believes the company is preparing to cut the prices of existing products to maintain its momentum during a time of economic uncertainty.

"We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points," he wrote. "Specifically, Apple may re-enter the $999 price point (currently $1099) with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1999)."

The analyst also expects "slightly redesigned iPods" that will include "lower-cost touch-based iPods" in time for the holiday buying season. "We believe Apple is getting slightly more aggressive with its pricing; but overall the company is not diverting from its strategy of premium pricing," he said.

While the focus this week will be "anxiety over gross margin," Munster believes it's only a matter of time before Wall Street clears its head and looks past margin guidance to focus on fundamentals, such as the upcoming product transitions and the positive impact those new products will have on revenue growth.

The Piper Jaffray analyst reiterated his Buy rating and $250 price target on shares of Apple.

[ View this article at AppleInsider.com ]

[shanmugam]

if he says so ...

[bpatton]

:: whines ::

Bu bu...end of September is too long of a wait. I want my redesigned alumnimum Macbook Pro nowwwww.

[solsun]

In other words, the analyst read the below thread:

http://www.appleinsider.com/articles...mbers_end.html

[digitalclips]

This all may be true, but hardly counts as a mind blowing new product which seemed to be hinted at yesterday. Apple have several things up the corporate sleeve I suspect.

[JoeDRC]

It sounds weird but I'm dismayed Macs are getting (possibly) cheaper

[SpamSandwich]

Sure, they have to innovate their way out of the current market (as Jobs has said before, in so many words). Low cost, amazing capability and access to lots of apps and upgrades that no other competitor can touch.

[bigmc6000]

Originally Posted by bpatton

:: whines ::

Bu bu...end of September is too long of a wait. I want my redesigned alumnimum Macbook Pro nowwwww.

Eh, I want an Aluminum MB. They can keep the MBP's priced high, that's fine with me. I want an AlumiBook with multi-touch trackpad, 160GB HD, 2GB base RAM, dual 2.4GHz with intel's newest integrated graphics (I'd like dedicated but who are we kidding here?) and the SuperDrive. So, basically, what I'm asking for a $200 price drop on the existing model and make it Aluminum. Another cool deal would be to make all the new ones have double density on the built in cameras...

Do ya think this is a pipe-dream or actually possible? I really think it's possible!

[solsun]

Originally Posted by JoeDRC

It sounds weird but I'm dismayed Macs are getting (possibly) cheaper

I don't believe this will happen.. Oppenheimer clearly said that margins would be lower, but it will be transitioning a product or product line to new technologies that the competition can't compete with..

If he's talking about bringing SSD or Touch technologies into an existing product line, I doubt prices will be cut.. These technologies, particularly SSD will cut into profit margins enough as it is without lowering the prices.

[Abster2core]

Originally Posted by solsun

I don't believe this will happen.. Oppenheimer clearly said that margins would be lower, but it will be transitioning a product or product line to new technologies that the competition can't compete with..

If he's talking about bringing SSD or Touch technologies into an existing product line, I doubt prices will be cut.. These technologies, particularly SSD will cut into profit margins enough as it is without lowering the prices.

Are you sure you know what 'profit margins' are?

[syklee26]

if Apple introduces Celeron powered MB for $999 and then rips me off by offering new C2D MB for $1199, I will be an angry man.

Celeron is garbage.

[markspain]

"We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points," he wrote. "Specifically, Apple may re-enter the $999 price point (currently $1099) with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1999)."

I believe there is a 100% chance that Apple would benefit by knocking $200 to $250 off the MacBook and iMac, as a way of further boosting market share. To me, it seems an opportune time to take advantage of Microsoft's bumbling and cut into their market share lead, rather than giving them time to recover (which MS might do, eventually).

If this idea is really stupid, could someone please explain why?

[iPhone91]

Originally Posted by syklee26

if Apple introduces Celeron powered MB for $999 and then rips me off by offering new C2D MB for $1199, I will be an angry man.

Celeron is garbage.

Apple would never do that. They know that there are too many people who are well informed that buy computers today. Their business plan is great hardware and great software. They would not sacrifice that for profit margins.

Steve

[solsun]

Originally Posted by Abster2core

Are you sure you know what 'profit margins' are?

Current product X sells for $1999 and costs $1500 to make

Future product X sells for $1999 and costs $1750 to make because the manufacturer added a more expensive component (like SSD.)

Therefore profit margins are reduced without lowering the retail price of the product.

CLEAR ENOUGH FOR YOU?

[chwilliam]

Originally Posted by Abster2core

Are you sure you know what 'profit margins' are?

Are you sure you do?

Also, does anyone know when exactly these $200+ price targets are supposed to actually come around? A nice $100 price increase on my shares would be much welcomed!

[tink]

It's something new and different.

[satchmo]

Hmm...how does lowering the price of a few notebook equate to "technologies and features that others can't match."

Unless we're talking about MB's with solid state drives and a multi-touch screen selling for $999.

[iPhone91]

Originally Posted by satchmo

Hmm...how does lowering the price of a few notebook equate to "technologies and features that others can't match."

Unless we're talking about MB's with solid state drives and a multi-touch screen selling for $999.

Hell yeah! Those would get bought up faster than Microsoft and its affiliates can say "Oh, Shit"!

Steve

[solipsism]

Looking at how much business Apple does with Macs and the projection for the next quarter Mac sales the estimated price drop in the article and the profit margin estimate doesn't add up.

What is more likely is that the cost of the notebooks will rise. For example, aluminum in the MacBook line and better display panels.

[pt123]

Multi-touch screen? Doesn't the screen get dirty enough already without people touching it?

[zunx]

Apple, make an UMPC (I mean, an UMMac) with a 5-inch or so small screen like this and we will order thousands for our University:

OQO model e2
http://www.oqo.com

We want it for wired and wireless presentations of NATIVE Keynote and NATIVE PowerPoint files. Even the current MacBook Air is too heavy and too large for us. We want it in our pocket!

[solipsism]

Originally Posted by zunx

Apple, make an UMPC (I mean, an UMMac) with a 5-inch or so small screen like this and we will order thousands for our University:

OQO model e2
http://www.oqo.com

We want it for wired and wireless presentations of NATIVE Keynote and NATIVE PowerPoint files. Even the current MacBook Air is too heavy and too large for us. We want it in our pocket!

For wired can't you just use an iPhone Touch with video-out cables?

[joe in miami]

Originally Posted by markspain

I believe there is a 100% chance that Apple would benefit by knocking $200 to $250 off the MacBook and iMac, as a way of further boosting market share. To me, it seems an opportune time to take advantage of Microsoft's bumbling and cut into their market share lead, rather than giving them time to recover (which MS might do, eventually).

If this idea is really stupid, could someone please explain why?

I doubt this is what Oppenheimer meant by "final blow to competition". iPod already has 70+% market share and iPhone is just getting started.

I think the best candidate for strategic overhaul is AppleTV. Maybe "technologies and features that others can't match," will be a set-top box which you can use with any cable or satellite provider with built in DVR and VOD. ATT's U-verse hardware can record upto 4 programs at a time. Imagine an elegant user interface that only Apple can design with access to "THE CLOUD" (email, contacts, photos, videos and God knows what else they can come up with), YouTube, music videos and movie rentals like Netflix/XBOX deal. Movies work best in a rental format.

I'm sure they are frustrated with the TV product.

[FuturePastNow]

$100 price cut isn't especially mind-blowing, not with the tiny hard drives and useless combo drives Apple equips its base models with.

[Chris_CA]

Originally Posted by digitalclips

This all may be true, but hardly counts as a mind blowing new product which seemed to be hinted at yesterday.

How did you get "mind blowing new product" out of "product transition"?

[satchmo]

Originally Posted by Chris_CA

How did you get "mind blowing new product" out of "product transition"?

Perhaps the mind blowing notion was assumed when Oppenheimer suggested Apple to bring "technologies and features that others can't match."

[Bageljoey]

Originally Posted by markspain

I believe there is a 100% chance that Apple would benefit by knocking $200 to $250 off the MacBook and iMac, as a way of further boosting market share. To me, it seems an opportune time to take advantage of Microsoft's bumbling and cut into their market share lead, rather than giving them time to recover (which MS might do, eventually).

If this idea is really stupid, could someone please explain why?

Because Apple, as a corporation, exists to make as large a profit as is possible, not to have an impressive market share.

Now, it is possible that decreasing the profit margin can lead to a higher overall profit if it has a dramatic affect on sales, but that is not always the case.

Suppose they sold a $1,000 MB (it makes the math easier and I am lazy) with a 35% profit margin (which is pretty good). That would mean they make $350 in profit for each one sold. Now, if you droped the price $250 you can be sure that sales would skyrocket. But your profit per is now only $100.
Even if you doubled sales, you would be losing money.
If you trippled sales, you would still be losing money
Even if you quadrupled sales, well, you would be increasing profits somewhat but only if you assume that sales would bave been flat. given Apple's 30-50 percent year over year sales groth they have been showing with the current high margin, you would have to have 7 or 8 times increases in sales to increase profit.

Setting your company up for that would qualify as "really stupid" in my book.

[Tony1]

I'm also afraid of price drops. My first question would be, what would we be giving up? I really don't mind paying a couple hundred extra for quality and features.

[mcarling]

Originally Posted by solsun

I don't believe this will happen.. Oppenheimer clearly said that margins would be lower, but it will be transitioning a product or product line to new technologies that the competition can't compete with.

I agree. It looks to me like the Piper Jaffray analyst is reading too much into Oppenheimer's words. This appears to be about aggressive pricing of a new product. My guess is the long-rumored tablet.

[DimMok]

A new Newton Pad, with E Book, IPod Touch Qualities, etc.

Its exciting times....

[bigmc6000]

Originally Posted by Tony1

I'm also afraid of price drops. My first question would be, what would we be giving up? I really don't mind paying a couple hundred extra for quality and features.

Ideally they wouldn't drop any features at all and considering Opp's quote one would believe that either 1) they are going to add new, fairly expensive features and keep the same type of price point or 2) slightly lower the price and add new, not quite as expensive features. I think putting an HD capable camera along with a multi-touch trackpad and switching to aluminum all while dropping the price to $999 (don't be surprised if they ditch the edu discount with a price like that, they've done it before with the iPod...) would qualify Opp's quote. At least that's my take.

Well, either that or some crazy iPod refresh but I think they are really getting close to full saturation so the point of just saying "hey look, we can make our stuff cheaper" and costing your operating margin 4% just to gain a few extra % points in the mp3 market doesn't really seem financially viable.

[nvidia2008]

Originally Posted by pt123

Multi-touch screen? Doesn't the screen get dirty enough already without people touching it?

In Soviet Russia, the screen touch YOU.

[nvidia2008]

Originally Posted by solipsism

For wired can't you just use an iPhone Touch with video-out cables?

I want holo projection from an iPhone Jedi. "Alright people, we only get one shot at this... er... product launch..."

[kenaustus]

In their financial results Apple is talking about Gross Margin when discussing margins. Gross margins don't include operational expenses, like salaries, R&D, advertising - that sort of stuff. Depending on how Apple handles it gross margins can include reductions for normal education discounts and back to school discounts. Gross margin is basically the cost paid for components, assembly, packaging and (generally) the transportation cost to get the completed products to the distribution centers.

[nvidia2008]

Originally Posted by kenaustus

In their financial results Apple is talking about Gross Margin when discussing margins. Gross margins don't include operational expenses, like salaries, R&D, advertising - that sort of stuff. Depending on how Apple handles it gross margins can include reductions for normal education discounts and back to school discounts. Gross margin is basically the cost paid for components, assembly, packaging and (generally) the transportation cost to get the completed products to the distribution centers.

Shouldn't operating (nett) profit margin be more of concern to everyone? I mean, of course the gross margin is important because without gross margin profit there would be no nett profit. But focusing on that alone... Why are the analysts and "the market" not having what I say is a more balanced approach? Yes of course gross margin is important but what about their other operations? For Tech, certainly R&D spending, and as a consumer-oriented enterprise, definitely marketing and sales expenses (hell, they're so big on retail now) are as important.

How come these anlaysts all have such a set way of doing things? Has this been beneficial to, well, whoever follows their analysis?

[TBaggins]

Originally Posted by AppleInsider

"We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points," he wrote. "Specifically, Apple may re-enter the $999 price point (currently $1099) with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1999)."

Well, yeeeeeha. Finally.


...

[vinea]

Originally Posted by nvidia2008

I want holo projection from an iPhone Jedi. "Alright people, we only get one shot at this... er... product launch..."

Doh...I can't believe it took me this long to make the connection from Science On a Sphere and Star Wars.



http://sos.noaa.gov/

Somebody really wanted to replicate what they saw in Star Wars and finally managed to convince management to pony up some bucks. Too bad it's not all that useful a visualization mechanism...

[tink]

New technologies.

[murphyweb]

Originally Posted by Bageljoey

Because Apple, as a corporation, exists to make as large a profit as is possible, not to have an impressive market share.

Now, it is possible that decreasing the profit margin can lead to a higher overall profit if it has a dramatic affect on sales, but that is not always the case.

Suppose they sold a $1,000 MB (it makes the math easier and I am lazy) with a 35% profit margin (which is pretty good). That would mean they make $350 in profit for each one sold. Now, if you droped the price $250 you can be sure that sales would skyrocket. But your profit per is now only $100.
Even if you doubled sales, you would be losing money.
If you trippled sales, you would still be losing money
Even if you quadrupled sales, well, you would be increasing profits somewhat but only if you assume that sales would bave been flat. given Apple's 30-50 percent year over year sales groth they have been showing with the current high margin, you would have to have 7 or 8 times increases in sales to increase profit.

Setting your company up for that would qualify as "really stupid" in my book.

Again you are talking about Gross Profit.

Gross Profit is the difference between the manufacturing cost of something and the sell price. It does not include the cost involved with selling the product and it certainly does not include any taxes.

The money yet to come out of the GP before it can be termed operating profit will be things like salaries, stores, advertising, operating costs etc.. These things tend to stay the same regardless of how many units are sold. So yes dropping the price and selling twice as much may not result in a better overall GP but it could well result in a better overall operating profit.

The general rule is that is costs just the same to sell 10 units as it does to sell 100 (not strictly true but good enough to work in this analogy).

[nvidia2008]

Originally Posted by vinea

Doh...I can't believe it took me this long to make the connection from Science On a Sphere and Star Wars.....

... BTW, "Science on a Sphere"? What next, "Physics on a Stick"? Mmm... with 20% more juicy neutrons...!