The last call for a Mac netbook

  • Chicago (IL) - Sales of Mac desktops are free-falling, largely because of the way overdue iMac refresh, and Mac notebooks are not matching the growth seen by the overall notebook market. In an economy like this, consumers are turning to ultra-cheap netbooks that are currently keeping the industry alive. Nevertheless, Apple is ignoring the netbook market despite being hurt by its refusal to unveil a Mac netbook. Analysts and investors feel the time is right and are pressuring the company to bring a $599 Mac netbook to the market, arguing that Apple could profit around 40% on it without cannibalizing MacBook sales. If Apple ignores the call for a Mac netbook this year, the company might easily pay dearly for the mistake with further sales declines and market share erosion.

    The prospect of a Mac netbook is still up in the air. It seems that everyone, from consumers to analysts to investors, want Apple to produce an ultra-thin, ultra-cheap Mac netbook. That is, everyone but Apple. The reasoning is that by entering the netbook market, Apple stands a chance to significantly increase its computer market share and counter recent estimated decline in Mac sales. Apple, for its part, has so far maintained that it isn't interested in the space populated with low-margin, sub-$500 products, built by too many compromises. Analysts and investors rebuff the argument, urging Apple to re-consider its position.

    The subject of a Mac netbook has been briefly addressed by two high-ranked Apple executives to date. First, Steve Jobs made the famous remark that Apple "doesn't know how to make a $500 computer that's not a piece of junk" while addressing analysts during last year's third quarter earnings call. Pundits dismissed the argument, pointing their fingers to the fact that Apple already makes $500 piece of junk that is Mac mini.

    He called the netbook market "a nascent category," arguing it does not represent a significant growth opportunity for Apple. "As we look at the netbook category, that's a nascent category," Jobs was reported to have said. "As best as we can tell, there's not a lot of them being sold." Really?

    Steve Jobs rebuffed the idea of a Mac netbook, arguing that Apple "doesn't know how to make a $500 computer that's not a piece of junk"...

    OR DO WE?

    ...But some disagree, pointing their finger at the $599 Mac mini that currently falls short in the features arena compared to cheap Windows PC desktops.

    Steve Jobs is wrong

    Jobs is, of course, wrong. Asus alone sold 4.9 million Eee PC netbooks in 2008. According to the February ChangeWave survey that polled consumer PC and electronics purchases in the past 90 days, and planned purchases in the next 90 days, cheap netbooks are gaining traction, helped by depressed economy and shrinking consumer wallets, up to the point that they are now significantly cutting into the sales of fully-featured desktop and notebooks. Asus recently stated netbooks will make up 30% of their notebook sales, which is estimated to be 25 to 35 million global units shipped this year (between 7.5 and 10.5 million netbooks shipped in 2009, an increase of 53% and 114% in netbook sales growth).

    According to ChangeWave, netbook sales have made up 17% of notebook purchases over the past 90 days among respondents in the ChangeWave survey. This means that netbooks have contributed to better than one in six of all notebooks sold in past three months. This sharply contradicts Jobs claim that there are not lot of netbooks being sold. If netbooks are really that popular, then Apple's absence from the netbook market must be affecting the company's bottom line, right? Right.

    Read on the next page:  Declining Mac sales, Apple has "ideas" for a Mac netbook...

    MacBook sales rise but sales of Mac desktops are free-falling

    According to the ChangeWave survey, purchases of Mac desktops and notebooks in the past 90 days compared with January numbers fell at double the 1 percentage point dip recorded for the overall computer market. Among polled respondents this month who bought a computer over the past 90 days, 15% and 20% went for a Mac desktop and laptop respectively, down 2 percentage points from the month ago period.

    So, Mac notebooks and desktop sales have shrunk at a faster pace than the overall computer market. ChangeWave's findings are echoed by more substantial market research by the NPD Group that estimated Apple's Mac unit sales in U.S. retail this month to have fallen a whopping 6% annually, the first monthly decline seen in three years. NPD Group also recorded flat Mac sales for the December quarter while at the same time sales of Windows PCs recorded a 7% growth. NPD analyst Stephen Barker told Reuters that "there is a little extra value to consumers to buy Apple notebooks."

    The ChangeWave survey says that planned Mac desktop purchases in the next 90 days will drop 2 percentage points over 26% of respondents recorded in January. Only planned Macbook purchases will rise 3 percentage points over the 30% in a month ago. These data points that show shrinking Mac sales are, of course, in sharp contradiction with Jobs' adamant stance about a Mac netbook. Will new realities force Apple to step into the netbook market?

    The long overdue refresh of Apple's Mac desktops, most notably iMac, is blamed on the eye-popping decline in Mac desktop unit sales since this past holiday season.

    Final disclosure: Apple has "some ideas" for a Mac netbook

    It appears that Jobs' leave of absence has created an opportunity for Timothy Cook to open at least one door enough to see the idea of a Mac netbook. Addressing analysts questions during the company's first fiscal 2009 quarterly earnings call, Cook said the following when asked a direct question about whether Apple would consider releasing Mac netbook. "We're watching that space, but right now from our point of view, the products in there are principally based on hardware that's much less powerful than we think customers want, software technology that is not good, cramped keyboards, small displays."

    But behind the curtain, Apple's executives paint a different picture when discussing Mac netbook with analysts. According to this IT World report, Timothy Cook, Apple's finance chief Peter Oppenheimer and marketing manager Phil Schiller all told Toni Sacconaghi of Sanford C. Bernstein & Co during recent meeting that Apple has some "ideas" for a Mac netbook.

    Broadpoint AmTech analyst, Brian Marshall, argued this Monday that a Mac netbook wouldn't cannibalize Macbook sales, adding that Apple could build a $599 Mac netbook with the same meaty margin it's used to. Marshall criticized Apple's leadership for the lack of vision and stressed that a Mac netbook may be the only weapon in Apple's arsenal to prevent possible market share erosion.

    Read on the next page:  A $599 Mac netbook with 40% profits, Conclusion: A Mac netbook arrives in time for the back-to-school season.

     A $599 Mac netbook with 40% profit margin

    "Key to Apple's model is continued share penetration," the analyst said. ""Currently, Apple has about 3.5% of the computer market. But I see that tapering off this year, for two reasons. One, it will be difficult to stay at that share in this downturn with a high-priced product. And two, the company has indicated it has no interest in playing in the fastest-growing [netbook] segment."

    Furthermore, Marshall suggested that Apple engineer a 10.1-inch Mac netbook with a 16GB SDD and ARM-based SoC designed by Apple's P.A. Semi engineers. The analyst suggested $599 price point for the product, which compares to $399 for a similarly spec'd HP Mini 1000 XP. "If you assume a 50 per cent premium for Apple's netbook, it would be priced around $599," adding he would expect between 35% and 40% profit margin, in line with overall 35% profit margin that Apple reported for the holiday quarter.

    The computer, according to Marshall, wouldn't cannibalize sales of higher-priced Mac notebooks. Priced at $599, a Mac netbook would be a "material difference" from the $999 entry-level white MacBook, and especially from the $1,299 for entry-level unibody MacBook model.

    Analysts think that a $599 Mac netbook wouldn't eat into MacBook sales. Entry-level white MacBook model starts at $999, while new unibody MacBooks start at $1,299.

    Conclusion: A Mac netbook arrives by the back-to-school season the latest 

    There's no reason why Apple wouldn't be able to engineer a $599 Mac netbook with at least a 35% profit margin. If Acer, Asus, HP and others can sell their netbooks at half this price, then Apple could get away with a $599 Mac netbook just as it is able to sell similarly premium-priced fully-featured notebooks that now make up for nearly 70% of all Mac sales. But Apple is no "me too" company and it won't enter the market just for the sake of it. For Apple, the market has to be big enough (and it is, as numbers suggest), established, with no clear leader, so that it can innovate within, bringing forth a new breed of product. The latter has
    written all over it, but this won't be enough to surprise consumers.

    We at least know that Apple is toying around with "ideas." Translated into plain English, Apple already has a Mac netbook and is waiting for the right moment to unveil it. The potential of such a product goes beyond the mere expanding market share and offsetting any general slowdown seen in Mac sales. A Mac netbook could be huge for the  K-12 school market and during back-to-school season, which would ultimately lead to follow-on Mac products and an almost guaranteed future sales revenue. With all of that in mind, it appears to be a given that we should expect a Mac netbook late summer, definitely before the back-to-school season.

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