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  • The Tea Leaves Report: A Look at Apple’s Major Product Transition

    August 11th, 2008

    When it comes to Apple’s marketing team, they certainly know how to stoke the fires. Indeed, the tech press can’t stop talking about it. I can’t stop talking about it. In fact, I devoted a fair amount of time during my two-hour session on Craig Crossman’s nationally-syndicated Computer America radio show recently to what this major product transition is all about.

    I don’t think I came to any hard or fast conclusions, but sometimes a little conversation can help illuminate the facts and separate them from the fanciful.

    So let’s look at the prospects and see how whether they fit in with the concept of “major” or “significant,” with the requirement that they also encroach seriously on Apple’s profit margins for the current quarter.

    Certainly, Apple doesn’t have a lot of time to deliver this magnum opus of a new product. They haven’t even sent out RSVP invitations to the press yet, although some suggest that’ll happen by early September.

    For now, I’ll look at some of the products that appear to be in desperate need of some change, and then consider a couple of product segments where Apple has yet to venture.

    There’s little doubt that new iPods are forthcoming. Some suggest a nano-flavored iPod touch, with a smaller touch screen, but the existing one is quite small enough, thank you. Then again, I don’t think there’s much Apple might do with the aging iPod line beyond giving it a shave and a haircut and keep it going till sales really begin to falter. Or iPhones fully take over.

    With the recent introduction of some new, spiffier Intel chipsets, it would seem that the MacBook and MacBook Pro are crying for a product update. Speedier chips would make a nice dent in the usual canned benchmarks, but is that all there is?

    Maybe not. Consider the case designs, which when it comes to the MacBook Pro, date back several years to the original models dipped in scratch-prone titanium. Where might Apple take its professional note-book, now that Windows PC makers are going after different colors to help their products stand out from the pack?

    Certainly the fundamentals of note-book design are not going to change significantly, but a slimmer form factor, with the requisite beveled edges, might have greater sex appeal, particularly if the changes extend to the MacBook. And adding MultiTouch to the latter would help as well.

    As far as touch screens are concerned, I don’t see it, because they aren’t quite as practical with larger displays, and all they’ll do is inflate the price by a fairly decent margin. If Apple decided to eat the price increases that would reduce the profit margins substantially, but is that truly part of the plan? Sure, it’s a fairly major product transition, but I’m just not impressed by this possibility.

    A tablet computer? Well, those things haven’t really set the PC world afire, so does Apple have any incentive to start yet another note-book line? No doubt they’d deliver a design that really stands out from the pack, but I don’t think adding yet another note-book line is in the cards right now.

    When it comes to desktops, what about the Mac mini? Is Apple finally going to give this forgotten product some attention? Would a combo Apple TV and fully-enabled personal computer form the next iteration of Apple’s entry-level computer lineup? At one time there were rumors that some media center capabilities would appear in the mini, so would that and a little rejiggering of the looks help?

    Another possibility is that infamous midrange minitower that a lot of us have written about in recent years. For me, it all started with my concept of a headless iMac, meaning the basic components of the iMac in a compact standalone computer that also included a reasonable degree of expandability.

    What do I mean by reasonable?

    Well, the ability to add a second hard drive, perhaps a second graphics chip and surely more RAM slots. Apple actually produced something similar to what I envision way back in the late 1980s, with the IIcx and its successor, the IIci. They were light and powerful and great choices for graphic artists and other content creators.

    I suppose such a model might cannibalize sales from both the iMac and even the Mac Pro, but I prefer to think the later caters to a specialized audience for whom maximum power and maximum expandability are both essential.

    Moving beyond these essentials, would Apple consider some sort of major expansion to its Apple TV line? Just where would it go? One possibility is incorporating a TiVO-style DVR, designed to work with your existing cable or satellite connection. Here Apple would probably want to upgrade its high definition support from 720p to the maximum of 1080p, which is the Blu-ray DVD standard.

    Another possibility is integrating this enhanced Apple TV into a full-fledged flat panel TV, available in the standard widescreen sizes of 42 inches, 50 inches, and perhaps 58 inches. Yes, the TV market is heavily saturated. Some companies are already cutting back. An example is Pioneer’s superbly-engineered plasma lineup. But don’t forget that I was just as skeptical about Apple’s potential entry into the highly-saturated mobile phone market.

    And you know how wrong I was there!



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    3 Responses to “The Tea Leaves Report: A Look at Apple’s Major Product Transition”

    1. william says:

      How about merging the classic and Touch lines to get a hard-drive based Touch device? About the only thing that should keep everyone from loving the Touch is the limited storage. Apple can’t fix that at a reasonable price with flash and that will help differentiate from the iPhone, which really isn’t about to get a hard drive. I predict that the classic goes away and we get fat Touches with high-capacity drives. Nano can stay the same, as can the Shuffle. How much storage do you really want when you cannot select which song you listen to?

      As for the laptops, there’s hardly anything I want them to add. Just change the case to freshen it up (not necessarily greatly improved, just different and new) and make it cheaper. Margins get clipped but sales volume goes up. I don’t think I believe in the dedicated encoding chip because honestly, most people don’t do that much encoding. If you need to rip a lot of DVDs or whatever, you can get a dedicated MP4 encoding USB fob already. It would appeal to such a limited audience that I cannot imagine a margin-hit to build one in. It would be kind of different, not that useful, and out of character for Apple, but they could easily add a digital TV tuner. DTV will be the only broadcast TV in the US soon and it has become widespread.

      I’d really like that headless mini-tower and an AppleTV with no hard drive that gets all content streamed either from that tower or from a Time Capsule. I’ve got a setup like this now with a Windows machine in my basement. I wouldn’t mind some sort of cheap Mac server doing it.

    2. KenC says:

      It’ll be LED backlights across the Mac line.

      Let’s do the math. Assuming a 3% hit to Gross Margins, at $8B in sales this quarter, that’s a $240M increase in costs.

      Apple has LED backlights in the MBA and the 15″MBP. The 17″ MBP has an LED backlight as a $100 option. If Apple were to add LED backlights to the 13″ MB and make it standard in the 17″ MBP, with no price premium, and add it to the iMac line, that could mean an additional 1.5M LED backlight panels. At somewhere from $100 to $250 in incremental costs for these LED backlights depending on panel size, it’s quite easy to see that over $200M being added just for the LED backlights. By 2009, as LED panels increase in size, you’ll see them added to the monitor line. Keeping the price points the same means Apple is eating the incremental cost, thus driving down GMs to 30%, as Oppenheimer stated.

    3. william says:

      KenC:

      That’s very logical but boring. OTOH, if it is a $100 option for the consumer, it surely wouldn’t be a $100 to $250 incremental cost for Apple. I sure hope there’s more to it than that! That also fails to match the hype introduced by Apple to explain the margin hit. That doesn’t really give us features nobody else has at a price they cannot match, etc.

      Look at Dell’s just-announced laptops . . . . I’m not really looking for a Dell but honestly . . . 19 hour battery life on one of them, Quad-cores on the larger ones . . . 2.2lb subnotebooks . . . the ability to surf the web and do email without booting the primary OS by using some low-power processor etc. . . . these aren’t terribly important things to me but that does show some innovation and creativity. If they’re going to take a margin hit, it ought to be for something that will drive sales, and LED displays ain’t it.

      William

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