Apple’s “Big” MacBook Announcement
At Apple’s last earnings report, we heard of their strategy to begin lowering company wide margins to the 30% range from its traditional target in the mid-30s. The first move, and most apparent, of this new strategy was to allow AT&T the ability to cut back iPhone pricing to $199 and $299 marking a 50% reduction in the initial price of an iPhone. Yesterday, Apple took another step (though not quite as big as anticipated) in its attempt to capture market share through price competitiveness.
This year’s lineup of Macbooks features fully aluminum casing, a glass multitouch trackpad, and more power efficient screens. Apple has also ditched Intel’s graphics chipset in favor of the more powerful nVidia GeForce 9400M GPU, sure to be a hit among those looking to play graphics hungry games (possibly by running Windows through a VMWare virtual machine).
But, this blog isn’t about computers and graphics power. It’s about investing and what the new Apple lineup has to do with it. Well, Apple’s new lineup isn’t quite the fire sale many were expecting. They’ve dropped the price of their entry level product to $999 (though some wonder if this is just to clear inventory) and do not look like they’ll be engaging in any price wars with Dell or HP any time soon as these two companies have begun offering sub-$500 laptops. What Apple has done, however, is lower its topline MacBook by $300 to $2499 and generally tighten its pricing range.
The modest decrease in prices is an interesting signal. Clearly, with the features added to the MacBook lineup, Apple is signalling a continued willingness to turn out leading edge products which combine all the newest in design and processing technology. With a premium product comes a premium price and it seems that the Company is willing to bet that, despite a weakening consumer environment, it can continue to drive profitability with this strategy. Given the recent market reaction, investors remain unconvinced.
In my opinion, Apple continues to offer best in class products and can continue to grow via marginal sales to its existing base via new product launches – i.e. iPhone, Apps Store, digitally delivered video, etc. But, to keep its torrid growth and reach its former valuation levels in the 30 P/E ratio range, the Company will need to make a commitment to court marginal computing users with lower price points. For a terrific breakdown of the importance of Mac sales to Apple’s top line, check out “What MacBook Means to Apple.”
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