Are Apple’s High Laptop Prices Sustainable?

bentleybookThe brushfire popularity of small, inexpensive laptop computers, aka netbooks, shows no sign of losing steam, with a reported growth rate for the category of 80 percent so far in 2009 (vs. a general laptop growth of around 13 percent), putting netbooks on track for sales of around 21 million units this year. Apple consequently faces a daunting challenge, with only two notebook models selling for less than $1,500, and no offering in the expanding netbook market.

Negative Lookout For Netbook-less Apple

This week, ChangeWave’s Jim Woods and Paul Carton report that, according to their April survey of 3,231 consumers, they’ve picked up a jump in planned laptop spending going forward, led by escalating netbook demand. That’s not good news for netbook-less Apple. Nearly a quarter of respondents to the latest survey (23 percent) who plan to buy a laptop in the next three months say it’ll be a netbook, five points higher than in ChangeWave’s February sample.

The good news is that Apple’s premium-priced lineup has helped make it the most profitable company in the personal computer business. The bad news is that the company’s position in notebooks appears to be unsustainable if it wants to maintain or grow its market share and stay a significant player.

Apple Becoming The Bentley Of Personal Computers?

In a recent commentary, BusinessWeek’s Stephen Wildstrom observed that while Apple has long seemed to aspire to be the BMW of the computer business, these days it’s in danger of becoming the Bentley. He has a point.

For instance, while Apple’s Q1 2009 financial results last month recorded the company’s best non-holiday quarter ever, with over $8 billion in total sales and profits of over $1.2 billion, or 14.8 cents of profit for every dollar taken in during the period, MacBook sales actually dropped a whopping 22.1 percent in the quarter. One European study even reported that netbooks accounted for 30 percent of all notebooks sold in Europe during Q3 2008.

Apple Sweeps Consumer Reports Notebook Ratings

On the other hand, the June issue of Consumer Reports gives Apple’s MacBook family of notebooks top ranking in the 13-inch, 14-inch to 16-inch, and 17-inch categories, even though many of their competitors cost less. The 17-inch MacBook Pro got the highest rating of any notebook reviewed by Consumer Reports, scoring 80 points out of 100, and rated “Excellent” or “Very Good” in all tested categories, so Apple has to be doing something right.

So people like the notebooks Apple is currently making, but cost seems to be the primary factor motivating consumers going forward. There is pull in both directions.

Apple Delivers Value

Personally, I’m not feeling at all ripped-off for paying a premium price (by PC standards) for my new unibody MacBook, which is a delight to use. I could have had a Windows laptop with a larger screen and more features for hundreds less than I paid for the MacBook, but I would have got what I paid for: a generic PC. The MacBook isn’t perfect. I remain convinced that dropping FireWire was a serious mistake, and there aren’t enough USB ports, but aside from those points, I have no serious complaints.

The 2.0 GHz Core 2 Duo MacBook with Nvidia GeForce 9400M integrated graphics has ample power for my needs, has so far been reliable (admittedly early days yet), looks and feels great, with a standard of workmanship reminiscent of a fine Swiss watch.

Unfortunately, it’s evidently becoming more difficult to convince cash-strapped and recession-weary consumers who’ve never experienced the joys of Mac ownership that the added value for the extra money really is worth it, which is the nexus of Apple’s laptop pricing dilemma.

Moving Downmarket?

I’ve been an advocate of Apple moving downmarket in order to protect and hopefully grow market share, but I also agree with BusinessWeek’s Wildstrom that Apple is probably right to shun the extremely low-profit bottom end of the laptop category. However, there’s a good case to be made for Apple wading in to the burgeoning sub-$1,000 “thinbook” category that blurs the distinction between netbooks and notebooks — machines I call “crossovers.”

Wildstrom suggests that one netbook/crossover strategy Apple could employ would be a MacBook based on Intel’s soon-to-be released Consumer Ultra-low Voltage (CULV) processors, paired with Nvidia’s 9400M graphics as used in the current MacBooks, to create a 12-inch notebook priced at perhaps $800. I wholeheartedly agree, and can almost see 12-inch PowerBook aficionados dancing in the streets and lining up to buy just such a machine.

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