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Taking Back the Market

The New Order

Tim Nash - 2002.01.11

With a new iMac drawing inspiration from Pixar's credit sequence, Steve has reintroduced the midrange desktop that died with the Cube. As the three models are sensibly and competitively priced ($1,299-$1,799) against Wintel PCs and stunningly designed, they should reinvigorate the iMac market.

However, although Apple is committed to phasing out the old iMacs, it will need to keep selling that design at the low end until it can hit the $799 and $999 price points with a flat screen. Help for this may be on it's way, as Samsung has just reduced the price of TFTs and Taiwanese producers are worried about a new price war.

As iMac sales dipped below 300,000 in Q4 (and many of those went to education), the line was in much need of LCD iMaca change in order to attract a higher percentage of the consumer market. Despite all the hype, with commitments reported by Morgan Stanley analysts of only 100,000 flat screens a month, a home run is hoped for rather than expected. Part of this is natural caution after the failure of the Cube; the other part is the huge question mark hanging over the global economy.

However, with the current softness in the flat screen market, Apple should be able to gear up production quickly if the demand is there.

The other factor which has affected other new product launches is Motorola's (in)ability to get sufficient G4s out the door. Even if Apple only sells 100,000 per month of these new models, it will be more than doubling its requirements for G4s. Releasing a new iMac model a month will help with the G4s and flat screens, but as IBM also has a G4 production license, Apple may have wisely hedged its bets.

With the continued production of the CRT iMacs at the low end for education and consumers who want a basic computer, it is easy to see combined sales for the ranges passing 500,000 per quarter again. According to the Taipei Times, Quanta will produce up to 1 million new iMacs and 600,000 of the LCD screens. Hon Hai, which provides CRTs for the old iMac, is contracted for up to 800,000 monitors.

Against this expected surge in iMac sales, Power Mac sales will drop considerably. Current Power Mac single processor versions offer little more than iMacs, don't have the screen, and are higher priced. Professional users will wait for the line to be refreshed later this quarter before deciding what to buy.

The New 14 inch iBookiBook

The 14" iBook fills an obvious gap, particularly when compared to the Wintel lineups. The new model would be even more attractive if it offered higher resolution. However, it is the TiBook that my Wintel using friends want, so a price cut or a new base model might have been more effective.

OS X/iPhoto

PowerBooks, Power Macs, and the new iMacs all have G4s, so systems optimised for OS X will soon be over 50% of new sales. It's therefore a good time to make OS X the default. New users are unlikely to even try OS 9.2, and anyone upgrading their system will try out OS X. There should soon be some serious momentum behind OS X, and makers of those 2,500 available applications will start to see a return on their investment.

iPhoto has generally received good reviews and adds to the attractive bundle of software on each machine. It is also another carrot to tempt Mac users into paying $129 and upgrading to OS X. With a few more products like this, most of them won't resist temptation.

iPod

Now that the iPod has sold 125,000 in under 60 days, it is well on the way to being at least a modest hit. Sales of these quantities should start to drive down the component prices and allow Apple to cut the retail price before competitive products reach the marketplace. However, sales will need to reach at least 500,000 per quarter to add substantially to turnover and hence to the bottom line in their own right.

iPod can be seen as a great demonstrator of Apple technology. To this end it makes sense to encourage companies like Mediafour to put out Windows programs which interface with iPod and MP3 programs. This will increase adoption of FireWire and get more Wintel users enjoying Apple kit. Then when they buy their next computer they will seriously consider moving to Macs and iTunes.

For iPod to become a breakout product, it needs to be more than an MP3 player and a backup drive for Macs. Making it easy to use with camcorders/iMovie and digital cameras/iPhoto would take iPod into a new and rapidly growing market and reinforce Apple's digital hub strategy.

Other thoughts on iPod can be seen in iPod: More than an MP3 player.

Apple Retail

With over 800,00 visitors in the pre-Christmas period and 40% of customers not owning a Mac, the stores are clearly helping to grow Apple's market share. As the web site traffic reportedly was also up by 70% in December (to over 1.7M), all these visitors haven't come at the expense of online sales. Let's hope that this encouraging trend continues and the stores break even as forecast for the next three quarters.

Previous thoughts on this are in Apple's Retail Grab: What Risk?, Apple's Retail Grab: Crunch Time, and Apple's Retail Grab: The Future.

It was an encouraging keynote, but not worth the hype - except for upstaging Gates and Perlman and their digital hub strategies.

The share price has followed the saw "buy on rumor, sell on news" and ended lower all week. It also hasn't been helped by the Merrill Lynch cautionary note suggesting Q1 sales were at most 1.4bn.

Next week we will see the Q1 financials and know what is really underpinning the share price. LEM

Tim Nash lives with his wife, her website on the area ariege.com, two daughters, a cat, and a dog in the French Pyrenees. He has worked for computer companies for more years than he cares to remember, lapsed for a while after the Apple II, but became a Mac fan when his wife introduced him to the IIsi. If you find his articles helpful, please consider making a donation to his tip jar.

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