Jobs: The iPhone is Apple's netbook

Apple Inc. has no imminent plans to compete in the growing market for "netbooks," the small, inexpensive laptops that accounted for 5% of all U.S. notebook sales last quarter, CEO Steve Jobs said Tuesday.

But the company already participates in the category, Jobs argued, citing Apple's iPhone and iPod Touch as devices that have much of the same functionality as the ultra-light, low-cost notebooks.

"We choose to be in certain segments of the market and we choose not to be in certain segments of the market," Jobs said during a Tuesday conference call with Wall Street analysts that highlighted its fiscal fourth quarter earnings. Jobs was responding to a question about whether, and when, Apple would enter the netbook market.

Repeating his categorization of the category last week as "nascent," Jobs downplayed the current market for the ultra-small laptops. "There's, as best as we can tell, not a lot of them getting sold," he said.

Later in the question-and-answer, Jobs said that although Apple would continue to add features to its notebooks as it dropped prices, he was unwilling to play in the netbook category as current defined. "We don't know how to make a [US]$500 computer that's not a piece of junk, and our DNA will not let us ship that," Jobs said. "But we can continue to deliver greater and greater value to those customers that we choose to serve and there's a lot of them. And we've seen great success by focusing on certain segments of the market and not trying to be everything to everybody."

At the same time, it was clear that Jobs considers Apple's iPhone and iPod Touch as courting netbook dollars. "One of our entrants into that category, if you will, is the iPhone for browsing the Internet and doing e-mail and all the other things that a netbook lets you do," he said. "Being connected via the cellular net wherever you are, an iPhone is a pretty good solution for that, and it fits in your pocket."

Ezra Gottheil, an analyst with Technology Business Research Inc., agreed with Jobs. "For Apple, the iPhone and iPod Touch are a way to provide Web access devices to the rest of the world," he said, referring to the popularity of netbooks outside the U.S. "And it prevents them from cannibalizing their MacBook lines."

Jobs, however, left the door open to a change in strategy if Apple does decide it needs to join the game. "We'll wait and see how that nascent category evolves," he said. "And we've got some pretty interesting ideas if it does evolve."

Gottheil said that if Apple did compete with the netbooks such as the Eee PC from Asustek Computer Inc., the Aspire One from Acer and the Mini-Note from Hewlett-Packard Co., it would likely stick to its premium-price model. "I don't think they would go below $500," Gottheil said. The category is defined by some, including research firm Gartner Inc., as lightweight laptops that cost less than $500.

The lowest Gottheil could see Apple going was $599, above that cut-off but $400 under its current entry-level MacBook notebook. Apple reduced the price of that model last week when it unveiled redesigned MacBooks and MacBook Pros.

According to Gartner, netbooks made up about 5% of U.S. mobile PC sales last quarter, one to two percentage points over the same period the year before. Their strong sales, said Gartner, was due in large part to the gloomy global economic climate.

"I don't know how Apple can play there," said Gartner analyst Mikako Kitagawa in an interview last week. And ignoring netbooks could come back to haunt Apple. "Mini-notebooks are expanding the market, but if you're not in the mini-notebook market, your market share will definitely shrink," Kitagawa said. "People will want to save $50, $100."

Jobs disputed the idea that Apple is required to participate in the battle for netbook market share, and with the thinking that the company had to fight off rivals by reducing its prices. "Is the downturn going to drive some of our customers to those lower segments of the marketplace and get to buy lesser products?" he asked. "I will be surprised if that happens in large numbers and I actually think that there are still a tremendous number of customers that we don't have in the Windows world...who would like to and can afford to buy Apple products. So we'll see what the ratio of those two things are, but we're not tremendously worried."

Apple sold a record 2.6 million Macs in its fiscal fourth quarter, which ended Sept. 30. Sales of its laptops, up 24% from the same time last year to 1.68 million, was also a record.

The company sold 6.9 million iPhones during the quarter, and has sold more than 10 million of the devices since it launched the smart phone in July 2007. Apple does not break out sales of individual iPod models.

Copyright © 2008 IDG Communications, Inc.

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