Tim Cook, Apple's chief operating officer, stirred up a little firestorm in the PC industry by calling netbooks---essentially the only growth area---"junky" and pointing out a bevy of flaws with them as constructed.
- Apple was being on point about netbooks;
- Signaled that it had no intention of playing in the netbook market---yet;
- And isn't going to sacrifice margins.
But the larger question is whether netbooks as currently constructed are junk. I have a Dell Mini 9 and the little bugger works just fine---as long as its hooked up to a keyboard and monitor. It's just too cramped, but the Ubuntu works well.
Here's what Cook said when asked for his thoughts about the netbook category on Apple's earnings call:
For us, it’s about doing great products. And when I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience, and not something that we would put the Mac brand on quite frankly. And so, it’s not a space as it exists today that we are interested in, nor do we believe that customers in the long term would be interested in. It’s a segment we would choose not to play in.
That said, we do look at the space and are interested to see our customers’ respond to it. People that want a small computer so to speak that does browsing and e-mail, might want to buy an iPod Touch or they might want to buy an iPhone. And so, we have other products to accomplish some of what people are buying netbooks for and so, in that particular way we play in an indirect basis.
The comments were notable on a few fronts.
First, Cook is somewhat speaking the truth. Excluding the swipe about the software---Windows XP and Ubuntu seem capable---he largely on target about netbooks. Cook's comments about the iPod touch or iPhone being a netbook is only partially true. The comparison is a bit thin.
So why would Cook take a jab at the netbook?
It sends a few signals.
1. Apple isn't going to blow its margins and a junk netbook could diminish its brand.
Would you screw with these margins for netbook glory?
The larger question is whether the netbook space is really worth the effort. AMD has punted on netbooks for now and will focus on the light, thin notebook market. Intel will be answering AMD and potentially at least limiting the profit margin damage that's possible from Atom.
2. Apple doesn't have a direct netbook answer yet.
Piper Jaffray analyst Gene Munster noted that Apple projected third quarter gross margins of about 30 percent, which is lower than the 36.4 percent reported in the second quarter. Does that hint at a netbook-ish device? Probably not. Munster writes:
While some investors believe this decline in GM may be due to a low-cost portable in the Sept. quarter, we do not believe this is the case. In other words, we do not expect Apple to introduce a low-cost portable in the Sep-09 quarter; our contacts in the Asian supply chain have not suggested such a product is on track for launch before Sep-09. Rather, we believe Apple is simply reiterating its previous comments instead of issuing revised expectations for the Sept. quarter.
3. The iPod touch may be seen as a netbook.
JP Morgan analyst Mark Moskowitz argues that the iPod touch is already a netbook. He writes:
It is no secret that unit trends in PCs are currently being helped by netbooks. We think that customers are attracted to the form factor for portability, email, and the Internet. While Apple has yet to introduce a netbook, the iPod touch is similar in function, and its sales momentum seems to be mirroring the netbook unit sales trend lines in the broader market.
4. The netbook form factor just isn't there yet.
Netbooks seem to small, but thin, light notebooks don't seem to be much of an advancement. There's something in between and Apple is most likely mulling over what that device should be. The Sony-VAIO P-Series may be a good start.