Apple Gets Aggressive

Not even mighty Apple (NASDAQ: AAPL  ) is immune to the PC doldrums of late. This was particularly evident when Apple reported its fiscal first quarter results last month and Mac sales were far weaker than expected. Most of this shortfall was primarily due to the redesigned iMac supply constraints that Tim Cook had warned investors about in October, but MacBook units were also down.

Apple no longer discloses its Mac product mix as it had done in the past, but Cook did say that laptops alone were "in line with IDC's projections of market growth." Translation: MacBook units were down approximately 6%. That puts MacBook units in the neighborhood of 3.5 million during the busy December quarter.

The 13-inch MacBook Pro with Retina display was introduced during the quarter, and reviews widely panned it as overpriced since the notebook started at $1,699, which put the Retina model at a $400 price premium relative to the standard 13-inch MacBook Pro sans Retina display.

That was until Apple got aggressive today.

That was quick
In a surprise move, Apple has reduced prices on numerous MacBooks while giving some models incremental processor spec bumps. The most significant change was pricing for the 13-inch Retina MacBook Pros, with the entry-level model getting a $200 price drop.

Configuration

Previous Price

New Price

Price Reduction

Standard entry-level

$1,699

$1,499

$200

Standard high-end

$1,999

$1,699

$300

Source: Apple.

The high-end model is also getting a slightly faster Intel processor. Rapid price reductions and performance improvements are simply a fact of life in the high-flying world of technology, but this particular model is getting a price drop less than four months after launch -- much faster than usual.

The 15-inch Retina MacBook Pros received no price changes, but did receive processor speed bumps. The 13-inch MacBook Air with 256 GB of flash storage received a price reduction down to $1,399.

That's what he said
This move comes just one day after Cook spoke at the Goldman Sachs Technology and Internet Conference, and specifically mentioned that the company is "making moves to make things more affordable." Analyst Bill Schope was initially asking about the possibility of a more affordable iPhone, but Cook expanded the discussion to include a wider range of Apple products such as the iPod. Obviously, he had MacBooks in mind, also.

While price reductions may put downward pressure on average selling prices, they've already been on a longer-term decline, which is expected in this industry.

Source: SEC filings. Calendar quarters shown.

The third quarter was the last time that Apple broke out its Mac product mix between laptops and desktops.

Product

Q3 2012 Units

Q3 2012 Revenue

Q3 2012 Avg. Selling Price

Desktops

968,000

$1.25 billion

$1,295

Portables

3.96 million

$5.36 billion

$1,356

All Macs

4.92 million

$6.62 billion

$1,344

Source: SEC filings. Calendar quarters shown. Figures may not sum due to rounding.

The real question is what kind of effect this might have on gross margins.

Markup mark down
To answer that, investors need to know what's happening with component costs. Last year, NPD DisplaySearch analyst Richard Shim estimated that the premiums that Apple was paying for Retina panels, which it sources from Samsung and LG Display.

Display Size

Standard Display

Retina Display

Premium

13.3-inch

$68

$160

$92

15.4-inch

$69

$134

$65

Source: CNET. Estimates as of May 2012.

These estimates are dated, and it's possible that these panel premiums have declined over the past year. Apple was previously charging retail price premiums of $400 to $500 for Retina models, but some of that extra cost also went toward the new industrial redesign and manufacturing processes.

Still, the company probably has some gross margin to spare, and since Macs are now just 13% of the business, the effects shouldn't be too detrimental. On top of that, what Apple may be sacrificing in percentage margins, it may be able to make up for in absolute dollar gross profits in the form of increased unit sales.

There's a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (3) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2013, at 8:06 PM, techy46 wrote:

    There going to be a whole lot of really powerful notebooks, Ultrabooks and tablets on sale in 2013. I can't wait to get a new Lenovo Yoga 13 or Helix.

  • Report this Comment On February 13, 2013, at 9:13 PM, H3D wrote:

    What do you know.

    @techy46 is an MS marketing man after all.

  • Report this Comment On February 14, 2013, at 12:52 PM, CluckChicken wrote:

    The problem is they are still much.

    @H3D - going to break it to you but here techy46 actually is right on.

    13" MacBook

    2.5GHz dual-core Intel Core i5

    8GB of 1600MHz DDR3L (shared)

    Intel HD Graphics 4000

    128G SSD

    $1499

    Lenovo Yoga 13

    3rd generation Intel Core i7-3517U Processor

    8.0GB PC3-12800 DDR3 SDRAM 1600 MHz (shared)

    Intel HD Graphics 4000

    128G SSD

    $1329

    The Yoga provides more versatility and is $170 cheaper.

    If you are looking for a desktop replacement the maxed out 15" MacBook get crushed by an Alienware at the same price points.

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