Apple hints at lower prices as iPod, notebook refresh on tap

Apple hints at lower prices as iPod, notebook refresh on tap

Summary: Amid all the chatter about Apple's fiscal third quarter results, which were strong, most concerns about the future revolve around two words: Gross margins. The big takeaway for technology buyers: Those lower margins hint at cheaper iPods and notebooks in the not-to-distant future.

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Amid all the chatter about Apple's fiscal third quarter results, which were strong, most concerns about the future revolve around two words: Gross margins. The big takeaway for technology buyers: Those lower margins hint at cheaper iPods and notebooks in the not-to-distant future.

Following Apple's typical strong quarter with a side of conservative guidance (Techmeme), CFO Peter Oppenheimer and COO Tim Cook noted that gross margins would be 31.5 percent for the September quarter and about 30 percent in fiscal 2009. It could be that Apple is lowballing again with its outlook, but there are good reasons to think that your Mac notebooks and iPods will come cheaper in the future.

Overall, I think you're going to see Apple play the volume game a bit. It is the No. 3 PC maker in the U.S. and has a lot of open field before it bumps into Dell and HP in those top two spots. Part of the margin pressure is back to school promotions, but executives also noted that there will be an undisclosed product transition that will also lower prices and hurt margins.

Oppenheimer said "we’ve got a future product transition that I can’t discuss with you today" as he explained the gross margin outlook. In fact, Oppenheimer said that exact phrase three times according to the SeekingAlpha conference call transcript.

So what will these product transitions be? It's a safe bet that you may get new portables from Apple, lower priced MacBook Airs and newfangled-but-less-expensive iPods with touch navigation. For instance, Oppenheimer noted that there has been some strong demand based on Apple's iPod Shuffle price cut. Apple is walking the line between its premium pricing heritage and stoking demand.

Piper Jaffray analyst Gene Munster outlines his case in a research note:

We believe Apple is readying new iPods and new portables that will apply downward margin pressure in the Sept. quarter and into FY09. We believe there is an 80% chance Apple will introduce redesigned MacBooks and possibly new MacBook Pros at lower price points. Specifically, Apple may re-enter the $999 price point (currently $1099)with the MacBook, or test the $1,799 price point with the MacBook Pro (currently $1999). In addition, we expect slightly redesigned iPods in the Sept. quarter, with lower-cost touch-based iPods for the holiday season. We believe Apple is getting slightly more aggressive with its pricing; but overall the company is not diverting from its strategy of premium pricing.

Munster's take is most likely correct. Apple can easily play in a lower price point with out getting into the $599 weeds where other PC manufacturers roam. And psychologically that $999 price point matters to the retail consumer. As for iPods, it only makes sense that touch becomes the primary navigation.

The other item to note here is that the margins on the iPhone aren't likely to boost the September quarter because of the way revenue is recognized.

Oppenheimer's full explanation about the outlook:

We are targeting revenue of about $7.8 billion, which is 25% growth over last September. We have included in our revenue guidance the full quarter ASP impact of the back-to-school promotion, a future product transition that I can’t discuss today, and also the elasticity that we’ve seen from the iPod Shuffle price reduction and its result on ASP.

I would tell you that we are very happy with our revenue growth and we’ve just reported the best Mac quarter ever and double-digit iPod growth, and are off to a fantastic start with the iPhone 3G.

We expect to sell more iPhones this quarter than we have in any previous quarter, but this will have a limited impact on the September quarter but will build significant revenue and earnings, which we’ll report in future quarters. If iPhone sales were reported as revenue when sold, the September revenue guidance would be significantly higher.

Bottom line: If you're in the market for an Apple iPod or notebook a little procrastination may not hurt given the company's comments.

Topics: Apple, Hardware, Laptops, Mobility

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37 comments
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  • Winner if they don't sacrifice quality

    This move would be a winner as long as Apple doesn't sacrifice quality. If they lower prices by making lower quality products, game over. If they just shave off price overhead, that's great. If they start matching the quality of computer products in Wal-Mart, forget it. One thing that impressed me about my Everex gPC was how the parts inside were from quality vendors. They lowered the price but kept good parts (Maxtor, Sony, etc) instead of putting no-brand parts into the machine to keep the price low.
    scott1329
    • Well in "THEORY"....

      Increased sales volume means you can get the same quality
      parts for less.

      Pagan jim
      James Quinn
    • I don't know . . .

      whether to take exception to your statement or not. I've never had a problem with anything I've bought at Walmart. They even sell iPods, and Zune's if you want 'em (I noticed the Zune boxes are a little dusty, however ;) ). I even bought an Acer laptop for my church there, with no complaints from the treasurer (primary user) yet.

      I think that if Apple could have the machines made in the volume that Walmart would demand, the price would drop like a rock (If they don't mind a lower profit margin, but get a bigger overall gross . . .). But even so, if they had a model (or two) designed to sell at Wally-world made with lower price (but still good parts), they wouldn't sully their rep, and stand a pretty good chance of approaching #2 . . .
      JLHenry
      • I don't understand

        This gloom and doom view of Apple making low-end Macs. If you consider normal Macs to be good why would you think cheaper ones would not be good as well? They would come from the same company, right?
        If anything the trade-off would be less processing speed and/or graphics horsepower... It's not like they're suddenly going to get parts from a different part of the world than the ones they're using now...

        PS: too bad on those dusty Zunes at Walmart. The 2nd gen ones are pretty solid. My 80GB player definitely beats the iPod equivalent in features alone.
        tikigawd
        • After all the time they've been on sale . . .

          I STILL don't know anyone who owns a Zune personally. Just people I've talked to on the net . . .

          And I think that was my point about a Low end MAC. The elitists could continue to buy their Macs in a Boutique at a high cost, and still feel superior to the rest of us who "had" to get ours from a *Walmart* <snicker> . . .
          JLHenry
          • HEY! NOW We Know Why Apple's Demanding PsyStar Recall Their Clones! :D

            The WalMart Mac! >:)
            drprodny
          • Yeah, i don't know anyone else with a Zune

            But I have one.
            Unfortunately, MS got into the MP3 player game waay late. The iPod had long dominated it.

            Nevertheless, the Zune is still a fine player. I did my research and played with both 80GB Zune and iPod (I wasn't willing to plunk down $500 on the lame 32MB iPod touch when I could get a nice HDD base player for half the price and 2.5 times the space), and the Zune beat the iPod all around IMO.

            Apple seemed to add useless "features" to the iPod Classic while not improving on existing ones whatsoever.
            tikigawd
        • Everybody beats the iPod equivalent in features

          The iPod just works better, and is nicer to use. Apple products often lack features, but they sell because of their design and ease of use.
          jorjitop
        • And "features" mean what?

          The biggest feature that the Zune lacks is it's only half a
          product. It does not come with something like iTUnes which
          makes the iPod a complete product. Consumers like easy
          and they don't purchase cars for example without wheels nor
          do they want to buy a toaster without a power cord or an
          MP3 player without an easy out of the box way to download
          and use music. The Zune is not a whole product.

          Pagan jim
          James Quinn
          • Since you say Zune is half a product it must be true

            [i]The biggest feature that the Zune lacks is it's only half a product.[/i]
            If you say so...

            The only thing I did with iTunes was sync my old iPod.

            Pray tell what "complete" means to you?
            I must guess that by "complete" you must mean that you can buy songs through iTunes in the locked down DRM-beauty of m4p? Because about that's the only thing you can't do on Zune that you could do on iTunes, as far as an MP3 player is concerned. Similarly, you can't buy MS-locked music on iTunes; you need Zune for that. That is if buying DRM'd music is your cup of tea.

            But all of that is immaterial to me since I like buying CDs and ripping them, not getting tied down to buying songs on a proprietary format.

            As for your beloved iTunes, it's S L O W as molasses. And I got tired of the Apple look. Sorry, I don't like my Windows to look lika a Mac. If I wanted the Mac look, I would uhhhhh, get a Mac.
            I like how the Zune software looks and feels much better than iTunes. And I like the Zune pad better than the Apple click wheel. Aaand I like my radio. Aaaand I like my big screen that let's me see the complete cover art along with the song, artist, and album info at the same time. Aaaand I like being able to sync the player wirelessly. Aaaand I like it that when the Zune is plugged in to my computer and I'm messing around in the Zune software (creating playlists, downloading podcasts, riping CDs) it all gets automatically synced, on the fly, without me having to hit the sync button.

            So how do you like them apples?
            tikigawd
    • If Ballmer were Jobs, not even he would be that stupid

      ...as to sacrifice quality to goose the margins by a few
      points. What's the use? Apple is to computers as Rolex or
      Omega are to watches and Sony used to be to audio and
      video equipment. You don't tick your customers off by
      reducing quality while still marketing to the high end.
      (Actually, Sony did, and that's one major reason their
      stock's tanked since 2000.) Apple also heavily market ease
      of use, stability and consistency (especially compared to
      Windows PCs); why give up the high ground when you own
      it? (#3 sales of computers, #1 sales of $1000+ computers.)

      I bought a new iMac two months ago; the effective price
      here in Singapore has dropped a couple of hundred dollars
      in that time (we've a huge nationwide sale on). Am I upset
      that Joe User can walk in and pay less than I did two
      months ago for the same overall kit? Not in the slightest. If
      I (conservatively) estimate that my 2 non-Mac systems take
      a couple of hours a week each to babysit and clean up
      after, and figure what my time's worth, I'm still money far,
      far ahead. And compared to a Dell or Compaq? "Dude," I'm
      NOT going to Hell anymore...at least in [i]this[/i] life!
      Jeff Dickey
  • RE: Apple hints at lower prices as iPod, notebook refresh on tap

    Wonderful idea because I am sorry I would never buy a Mac at the current price. You can get a comparable PC with more memory, a larger hard drive and other options for 300 to 400 less than a Mac. Sure Mac's look cool and they are great to look at when you go to a trendy coffee shop but in this economy what a device cost is more important than what it looks like. At least it is for me.

    -Tucker
    tucker@...
    • The make has always been more than the sum

      of it's parts. It's not the hardware or the OS. It's the
      combination of all pieces to make a whole. Sure a Mac looks
      good and well it should. But that is not the essence of a Mac
      it's the way all it's parts including the software and OS go
      into making the whole widget. A hand n glove relationship
      between the pieces.

      Pagan jim
      James Quinn
  • RE: Apple hints at lower prices as iPod, notebook refresh on tap

    Apple did try this before and failed miserably because they did turn out crap. I would love to be able to justify the extra dollars..let's hope they maintain quality.
    EricinOly
  • Apple will always be a premium company

    ...and not worth it IMHO.
    Narg
    • Opinions vary.....:P

      Pagan jim
      James Quinn
      • RE: Opinions vary.....:P

        That they do. Some folks like a flashy, overpriced box with an emasculated OS and some like Windows. Some of us prefer a very full featured, robust, extensible, scalable, highly configurable, desktop/works station/file server/mail server/etc. Funny how all of that is available at a price point far below either Apple or Windows. But then, as you said. opinions vary.
        richdave
        • And many an opinion holder miss the point....

          Besides the very negative and emotional statements you do
          have a point burried within...:P

          Sure Apple and it's wares are different. They don't follow
          the same path as MS or Open Source both more shall we
          say "Open" with Open Source being the more open than
          MS. Now since Open Source and MS exist already Apple
          chose a different path. You as the consumer get a wide
          range of options and or choices here and you should be
          glad for it. Apple's way of doing business is to control it's
          hardware and OS as well as applications to a degree to that
          the whole widget is well planned out and works together
          hand n glove. Now because of that there is a down side
          you don't get to install everything under the sun or do
          everything you might wish to your Apple system. However
          on the positive side "IF" you can get everything you need
          from Apple you KNOW it will work and you never have to
          deal with the mysteries of hunting down incompatabilities.
          Again it's a choice and I for one am glad of it. I being a
          desktop support specialist as my company chooses to call
          me can praise Apples way of doing business because when
          you get those Mac's setup to run production that is what
          they do day after day after day Our Windows setups are
          not always so reliable and more often than not it's due to
          one of two main problems component issues related to
          those famous low margin sales. Or software difficulties
          due to such issues as drivers, OS and or utilities that just
          do not mix well with the whole widget concept.

          Pagan jim
          James Quinn
  • RE: Apple hints at lower prices as iPod, notebook refresh on tap

    It is past time. For far, far too long, Apple's pricing policies has been and still continues to be "rotten to the core"! As soon as Windows came to market, had Apple been willing to engage in timely loss-leader aggressive price cutting, the face of the industry would have been far, far different and far, far better!

    Louis A, Carliner
    Masaryktown, Florida
    lcarliner@...
    • Have you ANY idea.......

      How many PC manufacturers have come and gone playing
      that very same game? How many who remain are not
      doing so well? Apple stands alone in many ways one of
      which is being one of the oldest in the Personal Computer
      industry and one of the healthiest at that. I wonder if
      Apple would have been just another casualty of the price
      wars if they had given it a try? I think the odds are good
      that they would have been.

      Pagan jim
      James Quinn