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  • Apple and the Cheap Gear Equation

    April 10th, 2013

    Over the years, the critics have urged Apple to build less expensive gear, such as a cheaper Mac, and, nowadays, a cheaper iPhone and a cheaper iPad. I suppose you can see the logic, since it’s assumed Apple’s sales and market share would be higher if more people could afford their products. Isn’t a high market share a good thing? And why not have lots and lots of models in all price categories, to give customers a choice?

    Now it so happens Apple followed the latter edict in the mid-1990s, when there were so many models, particularly the consumer-based Performa series, that you hardly know which was which. Indeed, one Apple executive told me at the time that they couldn’t separate the models either without a cheat sheet. But that all came at a time when Apple came close to ruin.

    Indeed, in those days, Apple even tried licensing the OS to third-party hardware makers. That approach also failed, although some tech pundits still think it’s a good idea, maybe because they figure that if you try something often enough, it’s destined to succeed even though it’s a lame idea.

    This doesn’t mean Apple doesn’t build cheap gear. You can buy an iPod for $49. The cheapest Mac, the Mac mini, lists for $599 sans display and mouse, but that’s not necessarily cheap in today’s cutthroat PC market. Indeed, that price is average in the PC space, which makes a Mac seem all the more expensive by comparison.

    But think about how the rush to the bottom impacts tech companies. Profits in the TV market are slim, and some companies are quitting the rat race. PC makers aren’t doing so well either. Take a look at the fate of Dell, once a market leader, which opted for market share at any cost. Profits and sales plummeted as the company pushed more and more cheap undistinguished desktops and note-books. Today, founder Michael Dell and his board are struggling to sell off the company to private investors, hoping for a decent payday. But if I were in the market for a cheap PC, I’d just look elsewhere, since there’s nothing about Dell that stands apart from the pack, but that’s the way it’s always been.

    So, as one blogger noted, maybe the critics expect Apple to duplicate Dell’s performance, which makes no sense whatever.

    Another demand is for Apple to build a cheap iPhone, because people who live in developing countries, and don’t have access to subsidized wireless plans, aren’t going to pay upwards of $400 even for a 2010 iPhone. The critics are talking of a translucent or another sort of plastic iPhone that would list for between $199 and $299. Magic, right?

    The argument has always been that Apple is doomed if they don’t have the highest market share in any market. Being number two, trying harder and all that, isn’t good enough. They have to sell more than any other company. This means that Google and the Android platform have won the mobile computer wars, except, of course, when you look at Google’s profits from the Android division.

    In the smartphone business, a recent report had it that Apple and Samsung shared 103% of smartphone profits, with the rest distributed among the remaining players? 103%? Well, that’s because some of those companies reported losses from their mobile gadget operations. But shouldn’t Apple be seeking to sell as much gear as possible regardless of cost? If they sell enough, there will still be profits.

    Of course, anyone who looks at Apple’s playbook, or even the occasional comments from members of the executive team, would realize that Apple hasn’t sought a number one status. They seek revenue and profits, even at the expense of fewer sales. Indeed, Apple got attacked by the media and financial community because profits in the December 2012 quarter weren’t as high as they expected, or hoped. If Apple sold more gear at lower prices and hence made smaller profits, would that make sense? Not to Apple’s shareholders.

    This doesn’t mean I wouldn’t like to pay less for an iPhone, iPad or Mac. It certainly doesn’t mean that Apple really needs to hold $137 billion in the bank, catching dust and earning interest in mostly offshore accounts. Apple could, I suppose, have an across-the-board 10% price cut on everything and still be hugely profitable, still adding to the cash hoard. Would that mean that sales would increase proportionately because of the lower price of admission? I wouldn’t presume to take a guess as to whether it would do anything but reduce profits, although it would seem inevitable that more products would be sold.

    Now when it comes to the cheap iPhone, if Apple could build a sexy smartphone with essential features intact that costs $299 unlocked and still yields a decent profit, I’d expect they’d do it in a heartbeat. That Apple plans to return some cash to investors as dividends does seem to indicate that somewhat smaller profit margins won’t be so bad. The plenty of money to go around. So maybe there’s a middle ground solution to the question of more affordable gear from Apple.

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