Apple Would Destroy Rivals With This Aggressive Move
DigiTimes is at it again. The hit-or-miss publication is out today with a new speculative report on Apple (NAS: AAPL) and what the Mac maker might have in its pipeline.
What'll it be this time?
This time around, the Taiwanese outlet claims that Apple is planning on releasing an updated MacBook Air in the third quarter, but the real meat of the report is that Cupertino is aiming for a price point of $799, according to its "sources from the upstream supply chain." It would be a response to Intel's (NAS: INTC) big Ultrabook push this year, which is clearly meant to take on Apple's MacBook Air family head on.
Source: Product image from Apple. Text added.
Source: Product image from Apple. Text added.
Last year, Ultrabooks simply couldn't compete with the MacBook Air on pricing, as they typically carried premiums of several hundred dollars compared with similar Apple offerings. Ironically, Intel's hefty chip prices were a major factor that was holding back OEMs from being able to lower prices, even though the MacBook Air similarly uses Chipzilla's processors.
Since then, Ultrabook prices have been steadily declining and now sit in more competitive price points, and Intel is aiming lower still. The chip giant expects Ultrabook entry-level prices to reach as low as $699 within the next few months, just in time for the back-to-school shopping season, which also happens to be an important timeframe for Apple, as it usually has various back-to-school promotions each year.
Gadget maker Acer recently said it simply can't make a profit on a $799 entry-level Ultrabook, with its hopes being to gain market share or profit on higher-end models. That's not stopping the company from shooting for $499 offerings next year, so it had better get those manufacturing costs down if it has any aspirations of remotely breaking even.
A recent phenomenon
As far as Apple is concerned, there are cases for and against a $799 MacBook Air.
If you've paid attention to Apple's pricing strategy over the past few years, you can see that Cupertino has gotten much more aggressive. Before the first iPad launched in 2010, Apple's rumor mill was buzzing along as usual and everyone knew a tablet was imminent.
What people didn't know was the price, and most analysts were expecting Apple to launch the device starting between $800 and $1,000. Apple pleasantly surprised the market with a $500 entry price tag on the new device. When Motorola Mobility (NYS: MMI) launched its rival Xoom tablet almost an entire year later, it started at $800. Apple also recently lowered the iPad 2's price to $400 to better combat Amazon.com's (NAS: AMZN) $200 Kindle Fire.
The original MacBook Air that was introduced in 2008 had an insultingly high starting price of $1,800 for a 13-inch laptop featuring an aging Intel processor and modest tech specs. The laptop didn't seem destined for the masses at such a high price. When Apple revamped the lineup in October 2010, it kicked that entry price down to $1,000 and has enjoyed blistering sales as a result.
Despite rumors that Apple would bump up the price of the third-generation iPad by $80 to accommodate for those pricey Retina Displays, Apple stood pat at $500, eating the difference and taking a hit on gross margins. iSuppli estimates that the Retina Display costs 53% more than the iPad 2 display.
The $800 question
I have no doubt that Apple could lower the price to $800 and still turn a profit, thanks to its unparalleled manufacturing and supply-chain prowess. The real question is whether or not it makes strategic sense for Apple to sacrifice the margins for the sake of market share, which is something Apple has only started to do in recent years, most notably with the iPad.
An $800 laptop would be the lowest price ever for a new Apple laptop, and would surely boost sales significantly. At the same time, it could threaten to cannibalize high-end iPad buyers that are willing to pony up the maximum $829 for a top of the line tablet. Do you get a high-end iPad or a low-end MacBook Air?
I'm going to lean against this one, although I think it has a reasonable chance of actually happening. My jaw would literally drop if Apple went with an $800 entry-level notebook, but it would definitely leave competitors scrambling even more than they already are.
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At the time this article was published Fool contributorEvan Niuowns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Intel, Amazon.com, Apple, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Amazon.com, Apple, Intel, and Microsoft and creating bull call spread positions in Microsoft and Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.