Apple Gets Aggressive
Not even mighty Apple is immune to the PC doldrums of late. This was particularly evident when Apple reported its fiscal first quarter results last month and Mac sales were far weaker than expected. Most of this shortfall was primarily due to the redesigned iMac supply constraints that Tim Cook had warned investors about in October, but MacBook units were also down.
Apple no longer discloses its Mac product mix as it had done in the past, but Cook did say that laptops alone were "in line with IDC's projections of market growth." Translation: MacBook units were down approximately 6%. That puts MacBook units in the neighborhood of 3.5 million during the busy December quarter.
The 13-inch MacBook Pro with Retina display was introduced during the quarter, and reviews widely panned it as overpriced since the notebook started at $1,699, which put the Retina model at a $400 price premium relative to the standard 13-inch MacBook Pro sans Retina display.
That was until Apple got aggressive today.
That was quick
In a surprise move, Apple has reduced prices on numerous MacBooks while giving some models incremental processor spec bumps. The most significant change was pricing for the 13-inch Retina MacBook Pros, with the entry-level model getting a $200 price drop.
The high-end model is also getting a slightly faster Intel processor. Rapid price reductions and performance improvements are simply a fact of life in the high-flying world of technology, but this particular model is getting a price drop less than four months after launch -- much faster than usual.
The 15-inch Retina MacBook Pros received no price changes, but did receive processor speed bumps. The 13-inch MacBook Air with 256 GB of flash storage received a price reduction down to $1,399.
That's what he said
This move comes just one day after Cook spoke at the Goldman Sachs Technology and Internet Conference, and specifically mentioned that the company is "making moves to make things more affordable." Analyst Bill Schope was initially asking about the possibility of a more affordable iPhone, but Cook expanded the discussion to include a wider range of Apple products such as the iPod. Obviously, he had MacBooks in mind, also.
While price reductions may put downward pressure on average selling prices, they've already been on a longer-term decline, which is expected in this industry.
The third quarter was the last time that Apple broke out its Mac product mix between laptops and desktops.
Q3 2012 Units
Q3 2012 Revenue
Q3 2012 Avg. Selling Price
The real question is what kind of effect this might have on gross margins.
Markup mark down
To answer that, investors need to know what's happening with component costs. Last year, NPD DisplaySearch analyst Richard Shim estimated that the premiums that Apple was paying for Retina panels, which it sources from Samsung and LG Display.
These estimates are dated, and it's possible that these panel premiums have declined over the past year. Apple was previously charging retail price premiums of $400 to $500 for Retina models, but some of that extra cost also went toward the new industrial redesign and manufacturing processes.
Still, the company probably has some gross margin to spare, and since Macs are now just 13% of the business, the effects shouldn't be too detrimental. On top of that, what Apple may be sacrificing in percentage margins, it may be able to make up for in absolute dollar gross profits in the form of increased unit sales.
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The article Apple Gets Aggressive originally appeared on Fool.com.Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple, Goldman Sachs, and Intel. The Motley Fool owns shares of Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.