Education: Driver for a lower-cost MacBook?

Education: Driver for a lower-cost MacBook?

Summary: The Mac community and fellow travelers are holding their collective breaths until noon on Tuesday when Apple's spotlight will move off of notebooks. While most of the speculation is on what will be introduced -- supposedly a MacBook with a significantly lower price tag -- others are questioning the why of such a move. But few are talking education.

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Apple low cost laptop?The Mac community and fellow travelers are holding their collective breaths until noon on Tuesday when Apple's spotlight will move off of notebooks. While most of the speculation is on what will be introduced — supposedly a MacBook with a significantly lower price tag [See Techmeme.] — others are questioning the why of such a move.

But few are talking education.

Back on July 21 while presenting Apple's Q3 earnings report, CFO Peter Oppenheimer said:

"Looking ahead to the September quarter, I would like to review our outlook, which includes the types of forward-looking information that Nancy referred to at the beginning of the call. For the quarter, we are targeting revenue of about $7.8 billion, or approximately 25 percent growth over the prior September quarter. We’re off to a great start with the iPhone 3G and expect to sell more iPhones this quarter than we have in any other quarter thus far."

"Under subscription accounting, iPhone sales today will have limited impact on reported results in the quarter sold. However, those sales will build significant revenue and earnings that will be reported in future quarters."

"We expect gross margin to be about 31.5 percent, reflecting approximately $23 million related to stock-based compensation expense, down from 34.8 percent in the June quarter. This sequential decline is expected due to three primary factors; first, the full quarter impact of the back-to-school promotion; second, a future product transition, which I can’t discuss today; and third, the one-time true-up of our contract manufacturer deferred margin that we realized in the June quarter."

Later in the Q&A session, he appeared to provide a bit of detail:

"In addition, and one of the investments that we make is to introduce new products that initially cost more because they deliver an entirely new level of value to the customer. Then we ride the cost curves down with value engineering and volume manufacturing, leaving us far ahead of our competitors."

"We have some of these types of investments in front of us that I can’t discuss with you today and we plan to continue to execute this strategy in the future. As we look beyond the September quarter, we would anticipate gross margins being about 30 percent in fiscal 2009. We are very confident in our new product pipeline, our growth opportunities, and the decisions we are making for our future."

When I heard this statement in July, my mind when first to the iPod Touch and the iPhone, with which Apple is attempting (and so far succeeding) to deliver a new mobile computing platform. Back in January, Oppenheimer said that the company saw big things from the Touch and iPhone:

"We view the iPod market as bigger than a market for simple music players. This is one of the reasons [why] we developed the iPod Touch and we believe that one of the iPod's future directions is to become the first mainstream Wi-Fi mobile platform. .. The Touch is off to a great start [and] we really succeeded in its introduction. It played a big role in our growing revenue 17 percent year over year. We don't think that revenue growth like this is evidence of a saturated market."

In the summer, Apple was giving away an iPod Touch with each new Mac in the higher education market. So, perhaps it was clearing out inventory and pushing a strategic direction in advance of some next-generation device.

With hindsight, that strategy appears to be playing out with the iPhone SDK and App Store online. Could it be that the lower-cost iPhone and iPod Touch were that "new level of value to the customer?" Maybe not.

So, that brings us to notebooks. Last week, some analysts pointed to price pressure on Apple from super-low cost Linux and Windows notebooks. They claimed that small, lightweight notebooks with a reduced memory footprint (many sold with a Linux OS or stripped-down Windows) were taking share from more-powerful "traditional" notebooks.

In the past, Apple has seen this entry-level market as separate from its potential customer base, who accept that the company offers a premium product that comes with a higher price. Note that this extra price is usually not as high as people expect. But it still requires that customers add up a system's technology and features as well as what they will be able to accomplish with that system and then put a value on that.

However, in the education market, where pressure on budgets keeps growing, the value proposition for cheap entry-level boxes may be too much for Apple's current pricing model. In the current climate, Cupertino may have to drop prices enough that schools, teachers and parents can justify the extra cost of a machine that can boot 3 operating systems.

Or as the company says: "ride the cost curves down with value engineering and volume manufacturing, leaving us far ahead of our competitors."

Check out: The low-cost laptop that Apple should have built (and sort-of once did)

Topics: Apple, Hardware, iPhone, Laptops, Mobility

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3 comments
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  • The e-Mac had a short life

    I'm not buying the education argument although it is
    credible.

    Marketshare has never been an Apple driver.
    Technological innovation and leadership.

    I think we are going to see something that none of us are
    expecting, something radically new that makes the
    technology cheaper, lighter and better for the user.

    I don't see Apple changing it's strategy and if it's good for
    everyone then it's good for education.
    mlindl
    • Market share v Revenue share

      You're right to a certain extent when you say:

      "Marketshare has never been an Apple driver."

      Market share has always been a long-term
      Apple objective though. And they've always
      had a higher revenue share than their Market
      share would suggest.

      But education is very clearly in their sights.
      Apple don't play the Microsoft game of making
      its users software dependant, and relying on
      their partners like Dell to go in cheap.

      Apple's approach is to offer what people
      actually want and deliver a better all-round
      option. The evidence is in the figures just
      released:

      In education, Apple have surpassed Dell to
      become the top-selling provider of notebooks
      at 39 percent. And at a major university, that
      share started in 2002 at 15 percent, and is up
      to 47 percent in 2008.

      That is proof that Apple are concentrating on
      education, but by allowing the market to drive
      itself instead of spending millions on
      marketing and losing revenue via price
      reductions. Smart thinking.
      Graham Ellison
  • Low Cost Macs as a Lifeline Technology

    Apple has always shown leadership in the educational market. In tough economic times, a cheap Mac notebook is a investment in a lifeline technology. It gives a person control over their career, even if their current job tanks.

    The key, I think, is in the telling of the story. You must have an Apple computer to write apps for the Mac or the iPhone. Many tools are practically free. A person that is not happy with their current job can start a blog, create a widget, and build an app that they can sell on iTunes and maybe make enough money to offset their 401K losses.

    To get more detail on why I think this, visit my blog at
    http://connectme.typepad.com/news/2008/07/inside-the-ipad.html
    brian.hayashi@...