A Look at Apple’s Golden Opportunity
March 2nd, 2009You’ve probably read those reports that PC sales are widely expected to contract this year by nearly 12 percent. This should come as no surprise, considering the shaky economic climate. As with autos, owners of personal computers will try to stick with the ones they have, spending money on upgrades rather than on replacement hardware. Or perhaps they’ll just decide to leave well enough alone.
Certainly, Apple is not immune. You’ve already heard of surveys indicating that, for the first time in a few years, Mac sales have dropped as well, though only slightly. It’s not at all certain, though, whether you can believe those figures, because they said the same thing about iPod sales last quarter, and yet Apple managed to eke out an small increase, largely because of overseas sales. They were actually down in the U.S.
Now the tech pundits, whom I rag on regularly because many deserve it, will continue to insist that Apple has to cut prices to the bone to survive. Otherwise folks will blow what little money they have left on a cheap PC box and be done with it.
Yes, it’s real easy to be an armchair critic, because you don’t actually have to prove you know what you’re talking about, talk is cheap and Internet bandwidth plentiful.
So far, there’s no indication that Apple is paying heed to such demands, though I should imagine that, if sales were to drop precipitously, they might have to revise their marketing strategy. For now, you can expect Apple’s prices to remain the same as they continue to upgrade hardware over the year (and this is written in advance of today’s product refresh where they did precisely what I suggested).
Besides, Apple still has some $28 billion cash on hand, more than Microsoft, so they could easily sustain an extended downturn and not suffer seriously. Well, maybe Wall Street will freak, but in the real world, it wouldn’t hurt the company. They might have to cut production, but no Apple employees would need to lose their jobs as a result. Remember that pretty much all Apple gear these days is built by third-party contract manufacturers, so production plans don’t really hurt Cupertino directly.
The situation may also present a golden opportunity for Apple to steal even more market share from Windows. You see, I expect those who can afford a new computer might be more inclined to seek longevity, extra value for their hard-earned money. It wouldn’t necessarily make a whole lot of sense to get a cheap box this year, only to have to discard it next year when it becomes malware-ridden and the cost of cleaning it up to restore “like new” performance isn’t worth the effort.
This doesn’t mean that Apple’s more expensive models would stand to gain. Any Mac you can buy is a superior value to any Windows box of a comparable or even greater price. This isn’t one of those fanboy-style declarations. It’s been true for years that Macs tend to hang around longer than comparable PCs. While the components may, these days, be essentially the same, Apple has traditionally used extra care in the design and assembly package. That has to count when a long and useful life is considered.
Certainly, it doesn’t appear that Apple is cutting back on its advertising, or emphasizing cheaper models. Consider that ubiquitous TV spot for the 17-inch unibody MacBook Pro. Lest you forget, that particular model retails for $2,799, and Apple’s pitch ignores the price-tag and emphasizes the eight-hour maximum battery life, the ability to handle up to 1,000 recharges and its easy recycling capability.
Certainly, this battery’s advances more than compensate for the fact that it’s not easily removed, and that you are urged to go to an authorized Apple reseller for replacement. That, however, isn’t going to happen for at least three years, allowing for full charge/discharge cycles every single day, with a tolerance of lesser battery life when the maximum number of charges has been exceeded.
At the same time, Microsoft’s credibility seems to lessen by the day. Sure early reports of the Windows 7 beta have been favorable, but it already appears they are making interface changes based on customer responses. You’d think Microsoft would understand the process by now, and not have to make wasteful alterations to their operating systems after they achieve the beta process. I know that if I held any Microsoft stock right now, I would be protesting loudly and regularly over the company’s inability to build reliable operating systems in a timely fashion, not to mention their total lack of true innovation.
Yes, despite the hazards of figuring out profitable pathways during a prolonged economic downturn, it does appear that Apple knows what to do and will, as they say, stay the course. So when the climate improves — as it inevitably will regardless of how they mess up the situation in Washington, D.C. — Apple will be more than ready to ride a new wave of popularity and sales.
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The beauty of buying a cheap box is that a year later you’re ready for a new one. 🙂
Neil Anderson wrote:
But if it’s a miserable year, do you want to wait that long? 😀
Peace,
Gene
I see a lot of economic ignorance about.
Apple is in the CONSUMER electronics business. In a normal recession, consumers continue to spend. It’s the businesses who hold off on investments in electronics or IT.
When businesses do more with less, the profits they earn are called productivity gains. They put off buying equipment or hiring workers because they can’t justify the expense. They find ways of solving the same problems without as many inputs. This increases unemployment among those in the capital goods industries which are hit hard.
We had very high productivity during the recession from second quarter 2000 to the first quarter 2002 when the Bush Tax Cuts kicked in. Suddenly, because taxes were lowered, businesses looked at their spreadsheets and found that it made sense to buy equipment and hire more workers. So, the Economy took off in 2002.
Now, because taxes or monetary inflation will be increasing throughout the next four years, the economy will be in a tailspin again. Then, the Price Inflation to pay for the “Stimulus Packages” will hit as soon as America starts to pull out of the recession. When the Bush Tax Cuts phase out in 2010, a double dip recession will occur in 2011.
It may be true that Apple will suffer a bit this time because President Obama is attempting to panic everyone into giving him the power to radically change America. A backlash is starting against this practice. It is still unclear how effective he will be in turning our economy into a Social Democracy like the European Union where there is negative job growth and a stagnant economy. Obama’s term of office may be a repeat the Carter administration’s. We can only hope that the enormous governmental waste is his only lasting change. This is the price that America has to pay for voter irrationality.
Even the consumers who are holding off on buying will wake to the fact that most of their jobs are not affected by a recession. What is likely to happen is that Apple’s product mix will change, as fewer Pro models are sold. So, a major change in Apple’s business model is unwarranted. Nor is the introduction of lower prices. Apple needs to build some slack into its pricing to adjust for the coming price inflation. Wage and Price controls would be stupid because they don’t work, but I wouldn’t put anything past Obama’s ignorance.
Of course, all bets are off if Obama can really sabotage the economy. Seventeen percent unemployment due to the Smoot-Hawley act under President Hoover was no joke, nor was twenty-five percent unemployment under FDR due to cartelizing American businesses under the NIRA and forcibly unionizing America under the National Labor Relations board. Obama seems to be working out of FDR’s playbook with more business regulations and Trade Union interference. The question is whether Obama will be allowed to succeed. Even Democrats are rebelling.
My hope is that Obama will anger so many people in this country that the US will move toward the right again. If so, the boom times are ahead of us.
“Of course, all bets are off if Obama can really sabotage the economy.”
“The Economy” being defind as “the 5% of the population with a tax increase”.
No, Tedious, the people who got hit the hardest were the poor and the self employed. If you had a job, your wages remained high when prices declined slightly, so you were better off. If your taxes went from 50% to 70%, at least, you got to keep some of it. Many big business people loved the depression, because the government kept the competition off their backs. They could combine with their competitors under the NIRA to price things so that they survived, because they were grandfathered in.
Oh! Yes, I forgot about the Blacks who went from 15% unemployment in 1928 to 70 percent through out the depression. The Davis-Bacon act maintained that all government jobs had to be paid for at the highest Trade Union wages, therefore the white Trade Union members got those jobs. The blacks weren’t allowed to underbid to get them. This act was unformally extended to all jobs. American Business was cartellized and kept so even after the NIRA was declared uncontitutional. The Trade Unions are artificial monopolies on labor.
Left, right, left right…. when will you people stop marching and wake up? They are all the same.
-wow, congratulations on adding the edit feature!
Tell that to Robert Mugabe in Zimbabwe, zek. He took a prosperous African country, second only to South Africa in wealth, and, in thirty years, turned it into an economic basket case through all the methods which Obama is likely to employ on us: class warfare, creation of a private army, violations of the rule of law, expropriation of wealth, nationalization of private resources, high taxes on the productive, high monetary inflation and excessive government expenditures to pay off his cronies.
Unfortunately, Zimbabwe was much poorer than we. We, at least, have a chance of turning around this march to the Left. We are rich enough that we can use Obama’s term of office as a good “bad example” like we did with Jimmy Carter’s. But, bad days lie ahead. We have to pay the price for the electorate’s foolishness.