Apple, Inc. Needs to Take the Chromebook Threat More Seriously

Improving performance at a cheap price is driving market share gains for the cloud-powered laptop.

Aug 25, 2014 at 2:00PM
Acer Chromebook

Acer's Chromebook 13 presents an interesting challenge to the MacBook Air. Credit: Acer.

At $279, Acer's new Chromebook is a fraction of the price of a MacBook Air but features a high-powered NVIDIA (NASDAQ:NVDA)Tegra K1 processor for delivering what should be remarkable graphics performance. Storage (16 GB solid-state hard drive for the Chromebook vs. a minimum 128 GB of storage for the Air) and software (Chrome OS vs. Mac OS) appear to be the major differentiators.

Is a bigger hard drive -- and the lure of the Mac -- enough to keep potential switchers from buying the Chromebook? I'm not so sure. In fact, after looking at the data, I wonder if this is the biggest challenge Apple, Inc. (NASDAQ:AAPL) faces right now.

Triple threat

Chromebooks are selling at a brisk pace. According to Gartner, annual sales are on pace to nearly triple over the next three years -- from 5.2 million in 2014 to 14.4 by 2017. Last year, a variety of vendors sold 2.9 million Chromebooks.

Schools are benefiting most. Over 10,000 have Chromebooks either in classrooms or on campus. Gartner, for its part, estimates that 85% of those sold last year went to educational institutions. Google (NASDAQ:GOOGL)(NASDAQ:GOOG) and its hardware partners are challenging Apple in a core market that executives take quite seriously.

"Macs performed well in the U.S. education buying season, with double-digit growth in the K-12 market, driven primarily by large deployments of MacBook Air," Chief Financial Officer Luca Maestri said during Apple's fiscal third quarter conference call on July 22. 

Maestri also referred to IDC data that says the iPad accounts for 85% of the U.S. education tablet market. "We've now sold 13 million iPads to education customers globally," he added.

Impressive progress all around, but also not enough to deter would-be Chromebook buyers.

A cloudy future for business

Longer term, Gartner expects businesses to get more serious about Chromebooks. From the press release announcing its findings:

"[Chromebooks] also encourage more collaboration and sharing of content. As more users work collaboratively in the cloud, collaborative working practices are likely to become more common which may further increase the appeal of Chromebooks and similar devices."

Google data helps to corroborate that claim. The search star has said repeatedly that 5 million businesses use Google Apps for Business. With NPD estimating that 25% of all low-cost laptops sold in the U.S. sold are now Chromebooks, it seems likely that a fair portion of those companies are using the device in some form.

Google isn't the only problem

Which Chromebooks are they buying? Two vendors stood out in Gartner's analysis of the market.


Source: Gartner (July 2014)

That Samsung still leads the market it helped pioneer isn't surprising. But at 21.4% of the market, Acer is starting to look like a serious rival. And now, with NVIDIA's help, the company is making a serious machine. (The Tegra K1 chip with its 192 graphics cores is widely regarded as a peer of desktop processors in terms of performance and power management.)

"Multi-tab browsing, multitasking and 10-person HD Google Hangouts via the 720p webcam do, however, aim to make this Chromebook competitive with Intel Core i-series-level models," CNET's Scott Stein wrote in a review. The latest MacBook Air leans on the i5 or i7 chip, depending on the model. (Though, to be fair, Stein didn't offer any sort of comparison between the Air and the Chromebook 13.)

Foolish takeaway

Will high-performance models like Acer's Chromebook 13 take a visible bite out of MacBook Air sales? I think it's too early to tell. But looking at the data we have so far, I also think the threat is very real. Keep an eye on Gartner's and IDC's quarterly PC market share reports, Apple investors. If the Chromebook starts taking a toll, you'll see the impact there first.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple and Google (A and C class) at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Apple, Gartner, Google (A and C shares), Intel, and Nvidia. The Motley Fool owns shares of Apple, Google (A and C class), and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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