Apple CFO: Netbooks Are 'Not Something We Would Put the Mac Brand On'

By Joe Wilcox  |  Posted 2009-04-23

Apple CFO: Netbooks Are 'Not Something We Would Put the Mac Brand On'

Apple is once again coming out against netbooks, or mini-notebooks as many analysts call them. The company's second-fiscal-quarter results perhaps show that netbooks aren't a good category for any computer manufacturer.

"It's not a segment we would choose to play in," Apple CFO Tim Cook told financial analysts during a conference call April 22. But other PC manufacturers are aggressively dabbling in netbooks, perhaps to a fault. Last week, I called netbooks a "cheap narcotic." They bring Windows OEMs a brief sales high, while laying their margins low.

Gartner first-quarter PC shipment data show the negative effects of mini-notebooks on the larger PC market. Worldwide, PC manufacturers shipped 67.2 million units, for a 6.5 percent year-over year decline. In the United States, shipments declined 0.3 percent year over year to 15.2 million units. Like the previous two quarters, netbook sales were strong. But the increase in shipments command a high price on averaging selling prices and, more importantly, margins.

Mikako Kitagawa, Gartner principal analyst, predicted that "U.S. mobile PC ASP likely will decline as much as 20 percent year-over-year in first quarter 2009." By contrast, without netbooks, Apple margins actually increased during the first calendar quarter, which is the company's fiscal second.

Cook said that netbooks "are really propping up the unit numbers for the industry as a whole." But the propping comes with consequences. In August 2008, before the big netbook sales surge, the Windows notebook ASP at U.S. retail was $689, according to NPD. By February 2009, ASP had fallen to $560, or within $20 of the average selling prices for notebooks. During the same time period, Mac laptop ASPs declined just $12 from $1,524 to $1,512.

Mac shipments were surprisingly strong during the first calendar quarter-2.2 million units-considering how much netbooks buoyed Windows PC unit shipments, while sapping margins. Mac shipments into the channel declined 3 percent year over year, but sales out to customers were flat sequentially. First to second quarter, Mac notebook units fell 22 percent and 25 percent by revenue. Cook called Mac sales "a solid performance, particularly in this [economic] environment."


No Interest in Netbook's Today

Still, Apple ASPs declined during the quarter, even as margins increased. "In the notebook business we did have an ASP decline, sequentially, and that was mainly driven by a higher mix to the $999 MacBook," Cook said. His statement is yet another indicator that Mac pricing is higher than what people want to pay in this economic climate. That said, the company has no plans to risk lowering ASPs, margins or the Mac brand's value before moving into the netbook market.

"When I look at what's being sold in the netbook space today, I see cramped keyboards, terrible software, jerky hardware, very small screens and just not a good consumer experience and not something we would put the Mac brand on," Cook told financial analysts. He emphasized: "It's a stretch to call them a personal computer."

While Cook said Apple has some "interesting ideas in this space," he emphasized that "it's not a space that exists today that we're interested in, nor do we believe that customers in the long term would be interested in [it]."

Cook asserted that for many people an iPhone or iPod Touch would be a better alternative to a mini-notebook. "We have other products to accomplish some of what people are buying netbooks for," he said."

Part of netbooks' appeal is their lower pricing, which Apple has more broadly resisted. The company has kept prices high to preserve margins, something Cook suggested wouldn't change, even with Apple's market share in decline. In the United States, its share dropped from 9 percent in the third calendar quarter 2008 to 8 percent in the fourth quarter, and to 7.4 percent in the first quarter of 2009, according to Gartner.  

During the conference call, Cook singled out the U.S. market as being different from other geographies, with slower educational and professional sales sapping market share. But that statement isn't clear from the fiscal-second-quarter numbers, where unit shipments declined 8 percent in the Americas and Japan and increased 5 percent in Europe.

Cook made clear that Apple wasn't willing to sacrifice margins for short-term market share regains. "Do I care about U.S. share?" he asked. "Of course, I do. However, I think cycles come and cycles go. What we're about is making the best computers in the world, not making the most." Cook added: "We believe that if we do that over the long term, we will gain share."

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