Analysis – Yesterday's refresh of Apple’s notebook family may feel like yet another hyped, but underwhelming Apple upgrade event. There are some who believe that Apple may be gambling away its Macbook empire and there are those who are convinced that Apple is not about Macs anymore. But then there are also those who think that the new Macbooks not only hold their technological lead in the notebook market but also expands the market potential for Mac notebooks. So, is the Macbook’s primetime gone or still ahead? And why should Apple care?

iPods and the iPhone may capture most of Apple headlines throughout the year, but the Macbook remains the single most important contributor to Apple's bottom line at this time. By any measure, we believe that Apple introduced solid upgrades for the notebook yesterday and if uniqueness attracts buyers, then Apple should have a good shot at extending its market share in this segment. As it is the case with all system vendors, Mac notebook sales are growing faster than desktops – more than half of all Macs sold are notebooks and Macs overall are growing six times faster than the industry average.

The numbers: Dollars and market share

Apple claims it owns 17.6% of the retail PC market in the U.S. Wall Street analysts estimate that Mac sales contribute 47% to an estimated $32.7 billion in Apple revenue this year, up from 40% of $19.3 billion in revenue in 2006. In other words, Macs may rake in $15.37 billion in revenue this year.

Whereas sales of Mac desktops and notebooks contributed 45% and 55% to total Mac sales in 2006, this year Mac notebooks are estimated to contribute a whopping 61%. This translates to 29% ($9.38 billion) of the firm’s estimated 2008 revenue, up from 22% in 2006. Apple has done a fantastic job positioning itself for the trend of growing notebook sales and a demand for much more stylish products. It is one of Apple’s fastest growing businesses that accounts for almost one of every three dollars the company receives.

Apple’s take in the U.S. notebook market:  $1 on every $3 spent

Market data provided by NPD shows that one in five laptops sold in the U.S. retail during July and August carried an Apple logo. If we look at the total revenue, Apple's share of notebook market in the same period was 35%. In other words, Apple took in more than $1 on every $3 spent on a notebook in U.S. retail. Of course, this trend means that average selling prices of Apple notebooks are much higher than those of PC notebooks and allows Apple to rake in fat margins.

NPD believes that Mac notebook sales grew 30% in revenue and 35% by units year on year between July and August. In the same period, Windows notebooks fell 1.5% and 10%, respectively.

Mac sales are growing six times the industry average

Gartner estimates Mac U.S. market share at close to 10% in September, with an estimated 1.64 million Macs sold in the current quarter and unit shipment growth that exceeds the industry average by 6x. Net Applications' operating system web share usage trends suggest that Gartner may be right. For example, the September survey of 40,000 websites that represent overall Internet usage indicate that OS X hit a new record of 8.2% of the operating system web share, a gain of almost 0.4 points gain over the preceding month.

With that in mind, it is easy to see that notebook space is Apple's market to lose. Having said that, yesterday’s Macbook and MacBook Pro refresh is critical to Apple's fortunes and the Macbook position in the notebook segment. Some feel that the refresh is underwhelming just as the iPod event did last month. Yes, we expected upgraded hardware such as Montevina Core 2 Duo processors, more hard drive capacity and more memory. We also hoped for reduced price points, but a month ago no-one would have put their money on a high-tech manufacturing process, a redesign, a glass trackpad and an Nvidia chipset move.

Read on the next page: Can buyers resist?

Can buyers resist?

Macbooks and Macbook Pros have always been selling because of their design and advanced features, such as an illuminated keyboard, multi-touch trackpad gestures, etc. Design is a matter of taste, but we have to be honest and admit that in terms of design, the new Macbooks have no real competitor. Where common PC design always seems to be a bit forced, Apple’s quest for simplicity results in beautiful creations.

The new manufacturing process code-named "Brick" employs lasers and water-jetting to carve a notebook casing from a single piece of aircraft-grade aluminum. One would expect NASA to employ high-tech manufacturing and special materials to make spaceships but you certainly would not expect it from a computer manufacturer. For some, the high-tech manufacturing may be reason enough to grab their credit cards. No matter how you look at it, it is one more feature that differentiates an Apple notebook from a Windows PC.

We have covered the other new features, such as the glossy LED-backlit screen a new glass touchpad and the move to an Nvidia chipset before. All of those feature have a certain unique touch to it that will allow Apple to market its notebooks as being “special”.

Especially the way how Intel was dropped may provide an indication how confident Apple is about its current market power and influence. Remember how the company praised Intel when it switched to Intel? Two years and several “special SKU” processors (that Intel made for Apple) later, Apple can easily drop Intel’s graphics part and even slap the company with some remarks about Intel’s deficiency in graphics without having to fear any retaliation. Like Intel, Nvidia granted Apple the right to announce a product (the GeForce 9400M integrated graphics chipset) before the product’s official announcement - which, at least according to our knowledge, has never been granted to any other PC manufacturer by Intel or Nvidia in recent history.   

Surely, it is just business and nothing personal. But the way Apple can pick up, drop and treat its suppliers speaks volumes about the relationship between Apple and suppliers: There is no single hardware supplier who would not want to be tied to Apple these days. As a result, Apple gets special treatment from virtually any hardware manufacturer.

Apple seems to have a clear lead in terms of features as of now. The new Macbooks indicate that Apple has not lost its mojo - the company can still surprise customers and deliver stunning design, exclusive hardware (at least for some time) and a sound feature set. We will forget at this point that Blu-ray is still not available, since Apple believes that it is still too expensive and has not enough traction yet (is this somewhat reminiscent of Apple’s decision to delay the option of a CD burner?) And then there is the glaring lack of 3G options: We are somewhat surprised that Apple can get away with such a gap in its options list these days.   

Road blocks

Recent ConsumerWave research indicates that consumers will spend less for consumer electronics over the next three months and some analysts think that the lack of sub-notebook could get Apple in trouble. We disagree. Apple kept the 13” white Macbook alive for a reason. It delivers the refreshed hardware with 2.1 GHz Intel Core 2 Duo processors, a 120 GB hard drive and an 8X DVD burner (SuperDrive sounds a bit strange when Blu-ray is available and Apple does not offer it) for $999.

Even if Apple is still miles away from offering a mainstream notebook in the $500-$700 range, the Macbook undercuts the psychologically important $1000 barrier. That should be enough for now. However, we also believe that it would be somewhat surprising if Apple were to stay put: Bernstein Research believes that a $900 MacBook would broaden Apple's addressable market by 50% on a revenue basis and 67% in terms of units.

A cheaper Macbook looks like a no-brainer to us. The current market may be challenging, but it appears that Apple is not fully exploiting the potential of its mobile computers. In that sense, we believe that have not seen the primetime of Apple notebooks yet.