Apple Stays the Course in Rough Economic Seas

Click here for images of the new MacBook, MacBook Pro and MacBook Air.

In the last post, I explained how Apple raised MacBook prices, rather than hugely cut them as many observers predicted. I'll go further: The $999 white MacBook is probably concession to finacial analysts and rumormongers clamoring for low-cost Mac portables. Based on yesterday's announcements, it's doubtful Apple ever planned to offer a sub-$1,000 model.

GOT A TIP OR RUMOR?

The white MacBook's configuration is evidence enough. It's puny. Apple essentially took the underwhelming $1,099 model, added a SuperDrive and cut the price by 100 bucks. Many Dell or HP notebooks selling for hundreds less have more memory (typically 3GB to the MacBook's 1GB), more storage, etc. The white MacBook isn't any more competitive at $999 than it was at $1,099.

Apple's pricing strategy is pretty much what I predicted. It wasn't rocket science. I looked at the company's past behavior and applied it to this product release. But, from another perspective, I shouldn't have been right. The United States clearly has entered recession, which raises huge doubts about holiday 2008 sales. Price cuts would seem to be the right approach. But Apple chose the riskier path:

• Pricing above the Windows notebook market
• Offering a superiorly constructed notebook for the price of a comparable Windows portable
• Protecting the Apple and MacBook family brands, by resisting the temptation to aggressively cut prices

The Great Price Cut Myth
Apple CEO Steve Jobs and executives Chief Operating Officer Tim Cook and Chief Financial Officer Peter Oppenheimer aren't stupid. They know the pricing strategy is risky. There's something very Japanese about Apple. Steve didn't come and say, "We're concerned." Instead, he opened yesterday's notebook launch with Tim giving the "state of the Mac." Tim took the stage a week before announcing 2008 fiscal fourth quarter earnings. Typically, the COO, like the CFO, would stay tucked away until earnings. Not yesterday.

The New Aluminum MacBook

He was there to give reassurance, particularly to the financial community and to investors. Tim explained why Apple was succeeding and put some pretty compelling numbers behind recent market share gains. I laughed when he pretty much repeated what I wrote weeks ago—that one in three dollars spent at U.S. retail on notebooks goes to a Mac.

He got some expected boost, from data not presented during the launch event. Yesterday, Gartner released preliminary PC shipment numbers. Apple held onto third place in the United States, with 9.5 percent market share, despite huge gains made by Windows and Linux OEMs selling Netbooks (mini-notebooks in Gartner parlance).

As I explained last month, low-cost notebooks are driving overall PC growth. The category is one where Apple doesn't compete, but it is having impact. "Mini-notebook shipments accounted for approximately 5 percent of U.S. mobile PC shipments and added approximately 1-2 percentage points of year-over-year growth," according to Gartner's announcement about third-quarter PC shipments.

Circling back to the "state of the Mac," Tim was there to bring calm, to explain how well Apple was doing. Why? Because Apple wasn't going to deliver the widely rumored price cuts. The company has chosen to stay the course, even as the economic seas begin to roll and heave. Nobody can yet say what will happen during holiday 2008, although holiday 2000 and that earlier recession forecasts gloom.

The expectation of lower-priced Mac notebooks hung over yesterday's Apple event and dulled it. Steve wasn't his usual animated pitchman. I didn't feel enveloped by what so many have called the Steve Jobs "reality distortion field." The pitch was muted, yet more focused, for a particularly unreceptive audience, because the "one more thing" they wanted wasn't coming.

Pretty Tanks
It's too bad. Apple's new MacBook and MacBook Pro are amazing, in part because of their unusual manufacturing process. Rumors of that process, what some people have called the "Brick," leaked out last week. I asked: Is Brick the Next Cube? My concerns remain, that during tough economic times most people won't care how the manufacturer produces the computer. But the result might matter to them.

MacBook Pro "unibody"

These new Mac portables are tanks—OK, pretty tanks. You can feel how solid, how durable are the new MacBook and MacBook Pro from the simplest touch. They make the white and black MacBooks and nearly every other Windows laptop I've handled feel flimsy. These are substantial notebooks, built for real world abuse during use.

MacBook Air is surprisingly rugged, too, and that's because Apple developed for Air the manufacturing process used for the new aluminum MacBook and MacBook Pro. Apple starts with a 2.5-pound brick of aluminum, which in the case of Air becomes a hard shell weighing less than half a pound. The manufacturing process also reduces the number of parts.

In an Apple-produced video shown during yesterday's event, Jony Ive, Apple's senior vice president of design, explained: "Traditionally notebooks are made from multiple parts. But the problem is that when you have multiple parts you add size and weight, and you increase the opportunity for failure." Jony said that Apple's breakthrough was to "replace all those parts with just one part, and that one part we call unibody."

Fewer parts, stronger enclosure and simpler design are the right approach, given just how much the average notebook is likely to be banged around. "If something doesn't need to be there, it's not there," Jony said.

The new MacBooks and MacBook Pros are remarkable in other ways that distinguish them from most Windows portables in their price classes, such as the glass, LED-backlit displays or multi-touch, glass touchpads. There is real, trendsetting innovation, beautiful design and great attention to detail there.

But for all their greatness, the new computers come at a time of great economic uncertainty, where consumer budgets may demand Fords not Ferraris. Apple is delivering lots of value in notebooks that are as much artworks as computers. But will people buy them in uncertain times? I don't have an answer for that. There are too many variables, including the U.S. presidential election, to work out before Black Friday, which officially kicks off the holiday selling season.

Apple's risk is great, but so are the potential sales rewards should holiday Mac sales boom. I'll say this: The new MacBooks and MacBook Pros can competitively hold their weight—for anyone looking to spend at least $1,299 on a new laptop.

Apple could still cut prices should holiday sales are bad for everybody. By holding prices firm now—and raising them for MacBook—Apple has more options to cut them later during holiday 2008.

[Editor's Note: Tim Cook identification updated and corrected.]

[Please send your tips or rumors to watchtips at live.com.]

Related Posts:

• How Apple Raised MacBook Prices, Apple Watch, Oct. 14, 2008
• Live from Apple's Notebook Launch, Apple Watch, Oct. 14, 2008
• What Apple's Notebooks Must Be, Apple Watch, Oct. 13, 2008
• It's Official: New Notebooks on Oct. 14, Apple Watch, Oct. 9, 2008
• Is Brick the Next Cube?, Apple Watch, Oct. 5, 2008
• Mac Laptop Retail Share: 35% Measured in Dollars, Apple Watch, Sept. 26, 2008
• Apple Demands a High Price to Be Cool, Apple Watch, Sept. 26, 2008
• Putting Mac Selling Prices in Context, Apple Watch, Aug. 8, 2008
• Vista PCs: These Prices Are Insane!, Microsoft Watch, Aug. 5, 2008
• Should You Pay Twice as Much for a Mac?, Apple Watch, Aug. 5, 2008
• Can Price Cuts Get Apple 10% Share, Apple Watch, July 23, 2008

Posted by Joe Wilcox on October 15, 2008 1:58 AM