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Thursday, September 07, 2006

Apple’s New Macs: Wrong Product, Wrong Price

Stocks: (AAPL)(GTW)(INTC)

Apple announced that it would bring out a new line of Macs. At first, they sound appealing. More processing horsepower from the Intel Core 2 Duo, and lower prices.
The entry level Mac will now be $999, down $300 from the previous starter version.

The two problems with this picture are that consumers have not shown any dissatisfaction with processor speeds. With broadband connections and Pentium IV chips, most users have no idea what they would do with a better processor. Are their gamers and multimedia aficionados who want a better processor? Yes. But, the balance of the users is not likely to be drawn into buying a new PC based on a bigger engine.

The other issue is that $300 is a lot to give up on a product that has relatively small margins as it is. The volume may be better, but it is questionable whether Apple can make up the profit difference on volume.

Apple is not going to get 10% of the personal computing market. It may not even get 7%% or 8%. It can, however, make money on Macs, in a way that some companies in the PC business, like Gateway, cannot.

Apple should back off on the heavy horsepower and keep the price high. It has been working for several quarters. Apple sold 1.112 million Macs in the quarter ending April 1, and brought in $1.572 million on those sales according to the 10-Q. With a yield per unit like that, Apple should leave well enough alone.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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