Archrivals: Netbooks Vs. Apple
Netbooks may be reshaping the ailing PC industry, but that doesn't mean they should be the next big piece in the Apple ( AAPL) jigsaw. The consumer tech giant is rumored to have its eye on the netbook market, a move that would signal a major change in the company's strategy. The iPhone maker has so far avoided mini-computers, preferring to focus its energy on feature-rich, premium-priced products like the MacBook.
As Apple's results show, this strategy has worked. Unlike tech firms such as IBM ( IBM ) and Hewlett-Packard ( HPQ) which offer a vast array of different offerings, Apple has made its name by focusing on a relatively small number of products which are all synonymous with its iconic brand. As the saying goes: If it ain't broke, don't fix it. The company's least expensive laptop is its $999 white MacBook, certainly not the cheapest offering on the market, but hardly an impediment to Apple's growth. Even at a time when PC sales are plummeting, the firm managed to grow its first-quarter Mac sales 9% year over year, underlining the strength of a business model that relies heavily on features and cutting-edge design. Other parts of Apple are also doing well, despite the tough economy. The company grew its iPhone sales 88% year over year during the first quarter, and iPod sales were up 3%. More recently, Apple's shares received a boost from the launch of the "talking" iPod shuffle. Apple's App Store is also thriving. More than 500 million applications have been downloaded since the store was opened in July 2008, spawning imitators from the likes of Microsoft ( MSFT) and Apple's smartphone rival Research In Motion ( RIMM).
With a string of healthy product lines and $28 billion in cash, does Apple really need to lower its margins with netbooks? At least one analyst, however, claims that this may not be the case and argues that Apple must jump into netbooks. "I think it's crucial for them to continue to gain share," Brian Marshall, an analyst at Broadpoint AmTech, told TheStreet.com. "The success of Apple is in their continued share gains." Marshall estimates that Apple could generate gross margins in the 35% to 40% range with a $599 netbook, compared to the roughly 30% margins achieved by other netbook makers. The analyst also disagrees with the notion that Apple would "cannibalize" its existing MacBooks by launching a mini-computer. "The investment community thought that netbooks would mean cannibalization of
Apple's high-end products," he said. "I think that they can sell these netbooks and not cannibalize their existing products because the features and functionality will be watered down." Even if this is the case, though, customers will be expecting a mini-computer that reflects Apple's design credentials and also offers something unique. Simply launching a netbook that looks and feels like current offerings from the likes of H-P and Asus would be a major disappointment. This could be why Apple's netbook is rumored to be a 10-inch touchscreen tablet computer, although few details are known at this stage. Users may be clamoring for low-cost mini-computers, but the tech giant needs to deliver something that fits in with the Apple heritage without hammering its margins. If this isn't possible, then it may be better for Apple to avoid the netbook market altogether.