Apple Sells its iPhone for $660.00 with Gross Margins of over 50% - Do they Really Need a Netbook?

  • Posted: 08 December 2008 04:21 PM

    I want to hear arguments on this issue. Personally, I think it would be a huge financial mistake to come out with a netbook. They effectively already sell 6.9 million netbooks at $660.00 a piece with gross margins coming in at over 50%.  Why come out with a $600 netbook that will obviously have very low and shitty gross margins?  Why come out with a netbook when the consumer is obviously paying and continues to pay a premium on Apple’s computers?  I don’t see the argument for netbooks.  The only case that can be made, and I think its not without its flaws, is that by selling a netbook, Apple could make net market share gains.  The hope here is that these netbook buyers will cause a third halo for Apple’s more expensive computers.  That in the future, these netbook users will move up to more expensive Apple computers.  I don’t think the net gains in market share and a potential third halo is worth the cost of bleeding in GM right now.

         
  • Posted: 08 December 2008 05:05 PM #1

    I totally agree with you, Andy.  Trading margins for share is not in AAPL’s interest in this case.

         
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    Posted: 08 December 2008 06:10 PM #2

    I once consulted with a lady who was supplying baked products to Costco. We took a look at her actual costs and she was losing money on every item sold.  Margins should never take a backseat to market share.
    Further, as mentioned, I’m not sure of the need for a netbook. The MacBook is relatively small. And the iPhone/Touch is quite capable, yet fits in your pocket. As for reading (eg Kindle), my wife has read novels on her Touch without problem.

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  • Posted: 08 December 2008 08:56 PM #3

    This is interesting

    http://www.engadget.com/2008/12/08/contract-laden-3g-acer-aspire-one-hitting-us-at-just-99/

         
  • Posted: 08 December 2008 10:21 PM #4

    Netbook functionality is exactly how I use my 6 year-old PowerBook. Old technology at low prices and narrow margins is not Apple’s style.

         
  • Posted: 08 December 2008 10:30 PM #5

    Everyone:

    Please remember the goal is yield per customer, not volume.

    Netbook buyers are less apt in general to spend on AppleCare, MobileMe or software such as Aperture or Bento2.

    The cheap PC market is a fool’s game.

         
  • Posted: 08 December 2008 11:13 PM #6

    The Mac mini was released in January 2005 at $499.

    The rumor is a NetBook or something for $599.  Could not Apple make money on such a device?  And Apple makes good money from iTunes, e.g. iPod Shuffle.

    I hardly see it as a loss leader.

    Mind you, I do not have a strong opinion on this, but it certainly seems an issue to reckon with.

         
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    Posted: 08 December 2008 11:37 PM #7

    I would much prefer to see Apple take a ‘cheap’ product like a cell phone and take it up-market.  Margin is easier to maintain and Apple wows the world by re-thinking a simple idea and pushing few boundaries.

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  • Posted: 09 December 2008 12:08 AM #8

    I have been working on a piece regarding the prevailing price structure in the PC industry and the shift towards the low-price netbooks. It’s not a concern for Apple, netbooks just steal share from Windows notebooks.

    Many just use computer for email/internet, create/view documents, not heavy use. netbooks perform these tasks, and historically. consumers were paying $2000—>$1500—>$1000 just for these features. Now, it’s available for $500 or less. The iPhone/Touch accomplishes much of the same needs. Look for an enhanced iPod/tablet from Apple as a response to netboooks. Not cheaper or watered-down Macs.  I’ll publish my analysis soon detailing my thoughts. But the short answer, Apple doesn’t need a netbook in the sense of what the current concept and idea of what a netbook is.

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  • Posted: 09 December 2008 12:52 AM #9

    turleymuller - 09 December 2008 04:08 AM

    I have been working on a piece regarding the prevailing price structure in the PC industry and the shift towards the low-price netbooks. It’s not a concern for Apple, netbooks just steal share from Windows notebooks.

    To reduce the price it’s my understanding the license fee for Windows is lower as well. It’s one more stop on the slow decline in Windows dominance and another bit of evidence Vista is an economic disaster for MSFT.

         
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    Posted: 09 December 2008 02:07 AM #10

    andyzaky - 08 December 2008 08:21 PM

    I want to hear arguments on this issue. Personally, I think it would be a huge financial mistake to come out with a netbook. They effectively already sell 6.9 million netbooks at $660.00 a piece with gross margins coming in at over 50%.  Why come out with a $600 netbook that will obviously have very low and shitty gross margins?  Why come out with a netbook when the consumer is obviously paying and continues to pay a premium on Apple’s computers?  I don’t see the argument for netbooks.  The only case that can be made, and I think its not without its flaws, is that by selling a netbook, Apple could make net market share gains.  The hope here is that these netbook buyers will cause a third halo for Apple’s more expensive computers.  That in the future, these netbook users will move up to more expensive Apple computers.  I don’t think the net gains in market share and a potential third halo is worth the cost of bleeding in GM right now.

    I won’t buy a touch, iPhone, or laptop but I could see buying a netbook or tablet.

    Why?

    The touch and iPhone are too small and hard on my eyes to read.

    All laptops overheat and performance suffers. Plus they are truly slow in comparison to pro level desktop workstations and if I go somewhere else, I assure you that I do not want computers as part of that experience.

    A small tablet with Wi-Fi would allow me to make a sandwich without the market unexpectedly moving on me while I’m away.

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  • Posted: 09 December 2008 10:30 AM #11

    Eric Landstrom - 09 December 2008 06:07 AM

    A small tablet with Wi-Fi would allow me to make a sandwich without the market unexpectedly moving on me while I’m away.

    The Japanese have a new product that yould fill the bill: USB powered luncheon meat. So far it only comes in baloney and salami, but ham and smoked turkey are on the way.

         
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    Posted: 09 December 2008 02:44 PM #12

    willrob - 09 December 2008 02:30 PM
    Eric Landstrom - 09 December 2008 06:07 AM

    A small tablet with Wi-Fi would allow me to make a sandwich without the market unexpectedly moving on me while I’m away.

    The Japanese have a new product that yould fill the bill: USB powered luncheon meat. So far it only comes in baloney and salami, but ham and smoked turkey are on the way.

    Is it compatible with Wi-Fi-Rye?

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    Posted: 09 December 2008 03:37 PM #13

    andyzaky - 08 December 2008 08:21 PM

    I want to hear arguments on this issue. Personally, I think it would be a huge financial mistake to come out with a netbook. They effectively already sell 6.9 million netbooks at $660.00 a piece with gross margins coming in at over 50%.  Why come out with a $600 netbook that will obviously have very low and shitty gross margins?  Why come out with a netbook when the consumer is obviously paying and continues to pay a premium on Apple’s computers?  I don’t see the argument for netbooks.  The only case that can be made, and I think its not without its flaws, is that by selling a netbook, Apple could make net market share gains.  The hope here is that these netbook buyers will cause a third halo for Apple’s more expensive computers.  That in the future, these netbook users will move up to more expensive Apple computers.  I don’t think the net gains in market share and a potential third halo is worth the cost of bleeding in GM right now.

    If Apple is making margins close to 50% on an $660 iPhone, there is not reason for Apple not to make a comparable margin on a NetBook. The iPhone should be made from parts which are more expensive than a NetBook,since making tiny components comes at a cost.

    However, as you point out, a NetBook is not part of the computer experience for Apple customers. It sits between a mini laptop and an iPhone. An iPhone is extremely portable, since it can fit in a pocket. A mini laptop is powerful and comfortable enough for high end photo editing. A NetBook doesn’t fit in a pocket, can’t be subtly used at a cocktail party; nor is it powerful enough for high end photo editing, and certainly isn’t comfortable enough to write the next Great American Novel.

    Should Apple decide that it needs a NetBook, it can sell accessories that would make handling an iPhone close to the experience of handling a NetBook. It can make the iPhone compatible with a bluetooth keyboard, enable the TV out code to support (portable) screens, and presto, you have a NetBook.

    I agree, an Apple branded NetBook for the time is unlikely.

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  • Posted: 09 December 2008 04:28 PM #14

    Wow.  Its seems we’re all on the same (right) side of the boat.  Why it is that the media and intellectually retarded analysts continue to hammer away at this ridiculous issue is beyond me.

         
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    Posted: 09 December 2008 04:56 PM #15

    andyzaky - 09 December 2008 08:28 PM

    Wow.  Its seems we’re all on the same (right) side of the boat.  Why it is that the media and intellectually retarded analysts continue to hammer away at this ridiculous issue is beyond me.

    We’re not in lockstep, Andy. There is a demographic that will buy an inexpensive netbook if it is priced right. The mounting sales of netbooks confirm that it is a viable sales space. At this time Apple does not participate in that space.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.