Why Apple needs a $700 MacBook Air

High margins still doable by switching to Intel's 'Bay Trail,' argues analyst

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Apple is able to rake in the margins it does on its hardware because software, which always has a higher profit margin than hardware, is part of the package. In the Wintel oligarchy, those profits are split between the OEMs (original equipment manufacturers) -- the Lenovos, HPs and Dells of the world -- and Microsoft.

Microsoft comes out on top, margin-wise. While OEMs eek out tiny margins, Microsoft books very high margins. In the December quarter, for example, the divisions within Microsoft that derive their revenue from software licensing recorded margins of 92% and higher.

Gottheil's point was that if one averaged OEM and Microsoft margins, the result would be more Apple-like. "Margins for the package [hardware and software] on PCs are pretty good, too," he said.

Apple's not completely insensitive to price, Gottheil argued, but was spoiled by the sales boom it experienced after it moved the Mac to the Intel platform. "There was no incentive for them to compete at a lower entry price point," Gottheil said of long stretches in the post-2006 timeframe, when Mac sales were growing by as much as 50% year-over-year, at least until the Great Recession of 2008-2009.

"Apple understands that its pricing does hold them back. Sales are not growing near as fast as they once did, and the real barrier to adoption is the price," Gottheil contended. "If they feel like they're not gaining some market share, I think they'll selectively cut prices. They don't want to leave too great a price umbrella [under their prices] for others to exploit.

"They're very aware of price sensitivity," Gottheil continued. "They don't want to be the Aston Martin of computers, they want to be the Lexus."

Gottheil didn't mention it, but Apple may have another kind of opportunity to grab additional sales share. In 2006-2009, when Microsoft stumbled with Windows Vista, Mac share almost doubled, according to measurement firm Net Applications. That was the heyday of the "Get a Mac" advertising campaign, featuring actor Justin Long and humorist John Hodgman, who portrayed a Mac and Windows PC, respectively, and poked fun at Vista and its quirks.

Windows 8 and 8.1, Microsoft's 2012 revamped OS and its 2013 update, have struggled almost as much as did Vista, with some customers and analysts -- and reportedly, Microsoft itself, at least internally -- comparing the two, to the detriment of Windows 8.

Apple hasn't capitalized on Windows 8's struggles, but it could, and perhaps duplicate the share gains of last decade.

A price cut to Gottheil's $700 for an entry-level MacBook Air -- 30% less than the current low-end model -- would help Apple maintain the Mac line as a going, growing concern, a goal CEO Tim Cook has expressed.

"If they price [a MacBook Air] at 20% to 40% above the sweet spot for [Windows] PCs, they could still have a very comfortable place in margins, but create a more enduring market for themselves," Gottheil said.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at  @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.

Copyright © 2014 IDG Communications, Inc.

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