Apple Inc’s New iMac Could Drive Further Share Gains Against Microsoft’s Windows

Apple's iMac family. Source: Apple. 

Confirmed today, Apple (NASDAQ: AAPL  ) launched a cheaper iMac for just $1099 (which is $200 less than the prior lowest-end model). The new iMac appears to use an Intel (NASDAQ: INTC  ) Core i5-4260U, which is a low-power, dual-core notebook/Ultrabook focused processor rather than the higher power/higher performance quad-core processors found in the $1299 and above iMacs. Further, it comes with a 500 gigabyte hard disk drive by default rather than the 1 terabyte model found in the $1299 model.

Mac is still strategically important
If you look at Apple's financials, you'll note that a relatively small part of the company's revenue base is dependent on the Mac. In the most recent quarter, Mac sales came out to about $5.5 billion -- paling in comparison to the $26.1 billion and $7.61 billion that the iPhone and iPad generated, respectively. While not a gigantic part of Apple's revenue base, Mac is still strategically important.

At Apple's Worldwide Developers Conference, the company showed off an entirely revamped Mac OS known as Yosemite. While the new features and enhancements were numerous, the most important part of the entire Mac presentation was that the Mac and the iPhone/iPad will now work seamlessly together. Apples pitch is this: for a user that owns a Mac, owning an iPhone is a good idea. And, of course, for a user that prefers an iPhone, owning a Mac is a good idea.

Making Mac more affordable is an excellent move
By making Mac more affordable, Apple will presumably increase its share of the PC market (continuing a multi-quarter trend). At this new price point, Apple will now be able to capture more of the users frustrated with Microsoft's (NASDAQ: MSFT  ) Windows 8.1 based systems, which should have a positive direct revenue impact vis-à-vis Mac.

More importantly, is that users who make the switch will probably be more likely to continue to use iPhone/iPad if they are already Apple users. For users that have been buying Android devices, Apple now has an additional marketing point to try to get those users to switch since those devices will now work seamlessly with the new, affordable Mac that they just purchased.

Bad news for Microsoft?
While the PC market has shown signs of recovery as of late, there's some indication that many are unhappy with Windows 8.1 and would have preferred a more clamshell/desktop oriented operating system. If more users switch to Mac as a result of the more affordable price point, then this not only directly impacts Microsoft's Windows revenue, but also gets in the way of its goal of proliferating Windows-based tablets and Windows based smartphones.

Foolish bottom line
Apple first showed signs of being aggressive with Mac when it refreshed the MacBook Air and simultaneously cut the price by $100. Now, with iMac, Apple is introducing a lower-cost, lower-performance model in order to try to further capture share from Windows PCs and to bolster its device ecosystem.

Whether the impact of Apple's moves with Mac is ultimately material is hard to call now, but Apple is broadening its ecosystem and priming the pump for when the next generation of iPhone/iPad devices launch later this year. Given how sensitive Apple's financials are to the sales of iPhone (and to an important but lesser extent, iPad), anything Apple can do to bring more customers to an iPhone or iPad without compromising on the margins of those products looks like a smart business decision.

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Read/Post Comments (4) | Recommend This Article (1)

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 June 18, 2014, at 12:47 PM, Drichter wrote:

    I'm sure they'll capture some market share, but they have precious few advantages and plenty of disadvantages when stacked against comparable PCs... They're still relying upon marketing and lack of solid information in the face of popular opinion, which won't last forever.

    The fact that Apple has begun competing on price is a little worrying. I'll be watching the next iPhone launch closely; now that they've finally fixed the screen size issue there may be reason to consider them a real alternative again, provided they make other improvements as well.

  • Report this Comment On June 18, 2014, at 1:05 PM, cjf337 wrote:

    Even with the price reduction(s) there's still a significant premium to be paid for Apple Macs/MacBooks. However, with the trend of BYOD (Bring Your Own Device) and the demographics of millenials seeming to prefer Macs (as well as other alternatives to Windows/PCs), there's a good chance Apple gear will get more uptake.

    Making sure that Apple devices have a strong eco-systems and ease of working with each other makes the case for that premium price a bit more palatable.

  • Report this Comment On June 19, 2014, at 9:54 AM, ConstableOdo wrote:

    I have no interest in these types of low-end computers but maybe they're good for enterprise use or education. I wonder if enterprise computers ever get memory upgrades anyway. Everyone keeps saying that Apple doesn't know how to price its products low enough but the company seems to be staying quite profitable. One would think that Apple knows how to price its products since it's not aiming for major market share with any product it makes. Apple doesn't seem ever likely to undercut rivals in a pricing war where being a market share winner still makes the company a financial loser. That low-end iMac sure seems like a computing weakling to me but for the people I know it would seem like an OK computer with all the easily accessed OSX services but definitely not a sales bargain. Apple seems to be testing the lower-end computing waters and may pull in a few fish.

  • Report this Comment On July 05, 2014, at 2:35 PM, DukeMontrose wrote:

    A few? Try 10,000,000? Certainly more than a "few".

    AAPLs are core holdings in the Endowment Fund I manage.

    As the leap options acquired before the split have done so well already, AAPL securities represent a high % of overall portfolio.

    Have no intention of doing a "balancing act" =

    Keep running with the winners.

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