| Apple’s lineup of MacBooks is getting an update on October 14. Photo: Apple |
You’ve probably heard the story of two guys walking in the woods who accidentally startle a hungry bear. As the bear turns to them, one laces up his running shoes. “Why bother? ” his friend says. “There’s no way we can outrun that bear.” With a wink, the man replies, “I don’t have to outrun the bear. I just have to outrun you.”
Ahead of what’s almost certain to be a dismal holiday season, this story takes on special meaning for Apple (AAPL). The bear market is poised to maul PC sales during the most important time of year, when about half of all annual sales happen. Investors clearly expect things to get ugly -– before Monday’s market rally, they had slashed Apple’s market value to half its year-ago level on fears that the credit crisis will ruin Apple’s Christmas.
But here’s the thing investors may be missing: Apple doesn’t have to outrun a bear market. It just has to outrun PC makers like Hewlett-Packard (HPQ) and Dell (DELL). And with a new line of laptops set to debut Tuesday, CEO Steve Jobs will argue that he’s already lacing up his running shoes.
Can Apple really rescue its holiday season? The idea may not be as far-fetched as it sounds. Even in bad years, consumers still buy computers; they just buy fewer of them. In the horrible fourth quarter of 2000, for example, consumer PC sales dropped 3 percent – painful, but not disastrous. Now, as then, the key for PC makers will be figuring out what features people really want, and offering them at a decent price. Back in 2000, Compaq had a strong holiday season because it correctly guessed that consumers would want CD burners built into their PCs. This year, consumers seem likely to be excited about laptops that are thin and lightweight yet affordable.
If thin and beautiful is in, that’s good news for Apple. Rumor has it that, thanks to new manufacturing methods, the latest crop of MacBook laptops will sport a smoother look practically unmarred by screws and seams. And analysts expect Apple will lower prices in a nod to tough economic times – entry-level MacBooks will cost as little as $800 or $900, nearly 20 percent less than the current prices.
The laptop price cuts are great, as long as Apple doesn’t take them too far. Part of the reason Apple has done so well lately is that it makes so much profit on every PC it sells – something like 25 cents on the dollar (competitors selling Microsoft (MSFT) Windows-based machines get less than half that). How does Apple do it? Apple doesn’t sell discount computers. Instead, Apple’s starter laptops are really mid-tier, weighing a trim 5 pounds and coming with goodies like Intel (INTC) Core 2 Duo processors and built-in webcams. When Apple tries to compete on price … well, things tend not to go so well. The Mac mini, the stripped-down $600 desktop computer, isn’t exactly a top seller.
“For Apple, it’s probably not a time to panic,” says Steve Baker, analyst at retail tracking firm NPD. “I certainly don’t see a reason that they need a very low-end notebook.”
So, it’s an open question whether the new designs will give Steve Jobs enough of an edge to avoid the bear, and outrun HP and Dell. But regardless, he shouldn’t cut its laptop prices too far -– because Apple doesn’t run well in cheap shoes.