Apple will launch netbook competitor in '09, says analyst

Lousy economy will force Apple to launch a $599 laptop

Apple Inc. will roll out a lower-priced and lighter-weight laptop in the first half of 2009 to compete in the growing "netbook" category, an analyst said today.

The slipping economy will force Apple to address a glaring omission in its lineup: the lack of a lower-priced laptop, said Ezra Gottheil, an analyst at Technology Business Research Inc.

"Apple is facing the possibility that as the economic news gets worse, that they're increasingly pricing themselves out of an important market," said Gottheil. "Economic conditions are accelerating this."

Apple won't compete directly with netbooks on price or size, Gottheil maintained, but will have to respond with something he characterized as an "entry-level notebook" that could compete with the $300-$500 price tags of most netbooks. Currently, Apple's lowest-priced notebook is the older, white-cased MacBook, which the company retained when it unveiled new unibody MacBooks and MacBook Pros last month. That MacBook lists for $999, although Best Buy has launched a sale of Apple hardware that prices the model at $899.

Gottheil pegged the debut of a lower-priced laptop at sometime in the first six months of 2009, and said that the most likely price point would be $599. He based that on comments a month ago by Apple CEO Steve Jobs, who dismissed any desire to play in the netbook market as currently defined. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that," Jobs said at the time.

Apple's answer to the netbook, continued Gottheil, would probably be more like the MacBook than the MacBook Air -- Apple's thinnest, lightest laptop -- but the company is also unlikely to simply copy current netbooks, which in some instances have sported screens as small as 7 inches.

"Apple feels compelled to be a little different," said Gottheil. "It will look at the netbook form factor and then decide, 'What are the appealing characteristics that we can create under our price umbrella?'"

Gottheil is betting that Apple will stress light and thin over width and depth. "I think this will be more paper-sized, with more screen than most netbooks," he said. The new unibody MacBook, which sports a 13.3-in. display, takes the tape at 12.8 inches wide by 8.9 inches deep, slightly wider than a piece of paper is long.

Other traits that an Apple netbook competitor might boast, said Gottheil, could include a touch-enabled screen and a limited amount of flash memory in lieu of a traditional platter-based hard drive. If the machine is flash-based, Apple might steer users toward its MobileMe online sync service for additional data storage. Apple could also point buyers to its new 24-in. stand-alone monitor, which includes a power connection to recharge a laptop, as well as USB 2.0 ports for jacking in a mouse and keyboard.

The stumbling block to such a strategy -- which Gottheil also sees as a way for Apple to play in emerging markets, where the bulk of computer sales growth has occurred -- is that a lower-priced notebook will cannibalize sales of the current MacBook. "That's the only reason not to create this thing," he said.

He recognized that it would be a tough move for Apple, but not impossible. "It will be hard to give up the wonderful revenue they've gotten from basically exiting the entry-level market," Gottheil said. "But what Apple is addicted to more than [Average Sales Price] is market share. And you can't keep flat ASPs forever."

In a research note released to clients last week, Gottheil noted that Mac laptop prices have dropped only an average of 0.1% per year in the last seven years. In the meantime, other computer makers have seen their ASPs drop significantly as first desktop, then notebook prices slid under competitive pressure. The netbook phenomenon, he said, is only the latest example of those price drops.

"Because Apple kept the price of its entry-level Macs higher than that of the competition during a long period of price decreases in the industry, Apple has essentially removed itself from the product category of entry-priced PC," Gottheil said in the research note.

Even Jobs left the door open last month to a change in strategy -- if Apple decides it needs to join the netbook game. "We'll wait and see how that nascent category evolves," Jobs said in late October during a conference call with Wall Street analysts. "And we've got some pretty interesting ideas if it does evolve."

According to Gartner Inc., netbooks made up about 5% of U.S. mobile PC sales in the second quarter, one to two percentage points over the same period the year before. Their strong sales, said Gartner, were mostly because of the gloomy global economic climate.

Adding a lower-priced notebook to compete with netbooks, Gottheil said, would give Apple "a chance to really gain share," something he sees the company very interested in doing. "It may be a MacBook-like thing, but they'll try to make it as different as they can."

Copyright © 2008 IDG Communications, Inc.

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