How Intel Corporation is Driving Apple's Plummeting Mac Prices

Although Apple sources its mobile chip architecture from the likes of ARM Holdings, semiconductor powerhouse Intel (NASDAQ: INTC  ) still remains a key supplier for Apple (NASDAQ: AAPL  ) in the post-PC world.

Source: Apple

Apple has relied on Intel to supply the CPUs that power its Mac lineup for years now, a lineup that recently witnessed its second price decline so far this year. As Apple investors wrestle to understand the true motive driving Apple's Mac price drops, and seeming neglect of this once-key product group, they need to understand that it's Intel that's actually been the main culprit in Apple's wholly unexciting year for the Mac.

Inside Apple's Mac price declines
On Wednesday, Apple announced an updated pricing scheme for its iMac lineup. With Wednesday's changes, Apple's entry-level iMac now costs just $1099. This marks the second price cut for Apple's Mac lineup this year. In April, Apple pulled a similar move with its MacBook Air refresh, reducing the sticker price of its cheapest MacBook Airs to $899 and $999 for its 11-inch and 13-inch models, respectively.

More broadly though, today's move serves as a strong indicator that Apple doesn't have much up its sleeve in terms of meaningful upgrades to its Mac lineup across the board in 2014.

The culprit? Intel
If you're looking to assign blame for Apple's lack of attentiveness to the Mac in 2014, look no further than Intel.

The reason? In order to actually execute on many of the rumored advancements Apple has reportedly considered bringing to its Mac lineup, such as a Retina display MacBook Air or a 4k iMac, Apple will also require a faster, more powerful, and efficient chip than the current line of Core i5 processors that power Apple's iMac and MacBooks can deliver.

More to the point, Intel will likely be unable to deliver its upcoming Broadwell 14 nanometer chipset architecture in time for Apple to integrate this supped-up line of chips into its Macs by the end of the year. Apple's April move to release the cheaper and only slightly more powerful MacBook Airs strongly suggested this was the case, and Apple's willingness to run essentially the same play with its iMac refresh roughly two months later make this sad fact a virtual lock. It's an unfortunate storyline in what will, in many ways, be a year of product revitalization as a whole for Apple.

So much more to Apple than just Macs
This storyline will likely prove somewhat of a non-starter in terms of Apple's financial results. As the iPhone and iPad have surged to dominance in their respective mobile markets, Apple's Mac lineup has become a less and less critical percentage of revenue, only 13% of Apple's fiscal year 2013 total sales.

As tablets, including Apple's iPads, decrease the overall argument in favor of PC or laptop ownership, a de-emphasizing of the Mac lineup from a financial impact perspective is likely to continue. That's not necessarily a negative for Apple, a company that's never been afraid to cannibalize sales of one product in order to secure the future of an emerging product line. So although some big-ticket trends are clearly weighing on Apple's Mac's prospects, it's also worth remembering that Intel should also share some of the blame this year.

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Comments from our Foolish Readers

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  • Report this Comment On June 18, 2014, at 5:20 PM, twolf2919 wrote:

    Although your article is probably spot on with regards to Apple waiting for Broadwell for more radical changes to its laptop lineup, it makes no sense to attribute the same for he iMac. Why would Apple need to wait for a more power efficient Broadwell chip? This is a desktop computer! Intel's desktop class chips are plenty powerful to handle anything Apple might want to do. Under the KISS principle, it would simply seem like Apple doesn't have anything new to offer in the iMac! That does happen :-)

  • Report this Comment On June 18, 2014, at 7:10 PM, skippywonder wrote:

    I suspect Apple's computer sales will be stronger than the author gives them credit for in the second half of the year.

    In order to understand what is happening, you need to understand what Apple wants from its computer lineup. My guess is that it wants to continue to expand its market share. Unlike the mobile market, the PC market is not rapidly expanding. So market share becomes an important way to increase sales.

    Now with the expiration of XP support, there is a boost -- albeit a temporary one -- in PC shoppers. Many of these people may decide to get a Mac to replace their aging Wintel computer. When faced with the choice of possibly getting a Mac, these consumers will now benefit from a cheaper option. Some folks will no doubt remain Wintel buyers, but some will not. Apple is covering its bases, as usual, while still ensuring that margins remain high.

    So the iMac will get an upgrade when it does, but this was not about that. It was about making sure that new PC buyers have another reason to look at Apple.

    I think the PC sales numbers for Apple in the second half of the calendar year will be pretty strong YoY.

  • Report this Comment On June 30, 2014, at 10:21 AM, ConstableOdo wrote:

    I don't even see the point of increasing the power of the iMac. Programs have pretty much stagnated in terms of power demand. I would think most users don't have a need for constant processor upgrades.

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Andrew Tonner

Andrew Tonner is a tech specialist for The Motley Fool. He is a graduate of The University of Arizona with a degree in Finance.

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