Behind the iMac Price Hike

Apple's lone-wolf status has provided many tangible rewards for its user base; however, it also has to deal with more logistical problems than the other guys.

Like a frugal Amish farmer, any columnist worth his byline welcomes every opportunity to roll up his sleeves and milk a promising topic for all its worth. This week, Apple Computers announcement that it will raise the price of its new iMacs to offset parts shortages lends new juice to my recent musings on Mac supply and demand.

"I have good news and bad news for you," CEO Steve Jobs told the crowd at last weeks Macworld Expo/Tokyo, in an unusually high-profile move to address the companys delays in filling orders for the new consumer systems, apparently because of a shortage of special components, such as its high-quality 15-inch LCD display and its SO-DIMM RAM.

The good news: Apple has delivered 125,000 of the new consumer systems, which it announced at Januarys Macworld Expo/San Francisco. Thats reportedly only about half of the iMacs it had projected it would ship this quarter, but Jobs asserted that Apple would be able to catch up with demand by the end of April.

The bad news: Apple will jack up the price of all new iMac orders by $100 across the board. (Early adopters who pre-ordered before the Tokyo Expo will still get their iMacs at the originally announced price.)

In a press release, Apple Senior Vice President of Worldwide Product Marketing Phil Schiller confirmed that component costs were the crux of the problems dogging iMac supply and pricing. "Since the new iMacs launch in January, memory costs have tripled and flat-panel costs have increased 25 percent, with little relief in sight," Schiller said. "Some manufacturers are de-configuring their models in response to these rising costs—reducing memory and disk drive capacity, for example. Weve chosen to raise prices by $100 and stick with our three fully configured new iMac models."

Given my longtime seat in the ranks of Apples loyal opposition (and my frequent readiness to voice that opposition), Im dubious the indefatigable Mr. Schiller would be inclined to embrace me as a kindred spirit.

Nevertheless, I think his observations come strikingly close to matching my own ruminations about Apples often lonely tradition of product trailblazing. At the same time, I think his reference to industrywide component shortages fails to articulate the peculiar vulnerability of the Mac to hardware reversals of this sort.

In the last installment of this column, I asserted that these sorts of supply issues come with Apples lone-wolf status as the only Mac maker in the market. That individualism has provided many tangible rewards for its user base: Time after time, Apples do-it-yourself attitude has produced a product lines far more exciting and distinctive than anything dreamt of at Dell, Compaq or other Wintel box makers.

However, it also has a tendency to throw up logistical problems the other guys dont have to deal with. While Apple has increasingly embraced standard PC components in its designs, new Macs most striking features tend to fall outside that common denominator, which means theres a shorter list of components suppliers ready to feed demand.

From the drought of 500MHz PowerPC chips back in 1999 that compelled Apple to downgrade the specs of its initial crop of top-of-the-line Power Mac G4 towers by 50MHz while holding prices steady (a scenario almost identical to the one Schiller decries in his recent statement) to the companys current pricing uptick, Apple often finds itself having to make revisions to its supply chain that more-derivative manufacturers wouldnt dream of.

Its a testimonial to the companys frequent flashes of brilliance (and its customers steadfast appreciation of same) that $100 price hikes, 50MHz downgrades or other unseemly course corrections dont derail the adoption of Apples latest and greatest—at least within the Mac minority.

What do you make of Apples latest moves and its effect on users, retailers and developers? Please e-mail me your observations, pro or con; Ill do my best to respond, and I hope to include reader feedback in future installments of this series.

Mac veteran Matthew Rothenberg is online editor for Ziff Davis Medias Baseline and CIO Insight magazines.