Cheaper MacBook Airs make it tougher for ultrabook makers

Gregg Keizer
13 June, 2012
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Apple did something very unusual Tuesday: It cut prices.

As part of its long-awaited notebook refresh, Apple dropped the price of three of the four models in its signature MacBook Air line by $100, representing cuts of between 6 and 8 percent.

The new laptops and prices, were announced at Apple’s Worldwide Developers conference.

Apple rarely reduces prices on its Macs and instead prefers to keep the dollar figure static while boosting performance and storage capacity with newer processors and graphics chipsets, more RAM and larger hard drives or SSDs (solid-state drives).

The last time Apple reduced prices of the Air was in October 2010, when the company introduced the 11in laptop with 2GB of memory and a 64GB SSD.

Before that, it’s hard to track down an Apple price cut other than the mid-2009 6 to 28 percent discounts on all then-available MacBook Airs and MacBook Pros. That move, analysts said at the time, was the company’s reaction to the crumbling economy and consumer unrest.

“For them to take $100 off, that’s a pretty potent statement,” said Frank Gillett, an analyst with Forrester Research, in a Tuesday interview. “They’re cutting prices and improving the hardware. That means that there was enough room in the margin before to return some to customers. And it shows that they’ve recouped all the setup and tooling costs, so they can set prices more marginally.”

That doesn’t bode well for rivals, especially the OEMs (original equipment manufacturers) looking to cash in on the thin-and-light category with Windows-powered ultrabooks, Intel’s marketing label for MacBook Air competitors.

“Intel and Microsoft are working really hard to convince buyers that Windows 8 and laptops, as well as convertibles, can compete with the Air,” said Gillett, referring to both features and price. “But the analyst reaction has been mixed so far. [Ultrabooks] remain to be proven.”

More importantly, Gillett questioned whether Windows OEMs could create an ultrabook comparable to the Air and undercut Apple’s prices.

Apple has been making the Air for more than four years, noted Gillett and that has given the company experience in design, manufacturing and cost-cutting that other companies don’t yet have. “They now have the volume [in sales] and the economy of scale [in manufacturing] that others may never be able to hit,” Gillett said.

Those OEMs also work at another disadvantage, as they must pay Microsoft for each Windows license.

Windows ultrabook makers, in other words, are starting in a hole and unless they can convince buyers to snap up the new notebooks, they may have a hard time reaching the manufacturing scale – and thus the lower costs – that Apple just demonstrated by cutting prices.

“It’s just not clear if it all will pan out for [ultrabook makers],” said Gillett. “You could say that the Air is more expensive, that’s something people have said for a long time. But if you do a feature parity, the price difference drops away.”

Gillett declined to speculate on whether Apple reduced prices as a pre-emptive strike against ultrabooks before Windows 8 appears; Microsoft’s next operating system will likely ship this spring.

“It’s hard to know what’s on Apple’s mind,” Gillett said in a major understatement. “There may be something to that, but then, they do tend to follow their own inner compass.”

Critics have said that the current crop of ultrabooks are too expensive at their starting prices of around US$800 – although that’s recently dropped to around US$750 – that they lack the fit and finish of Apple’s Air and that the choice of cheaper materials, like plastic rather than the milled aluminium “unibody” case that Apple uses, turns off buyers who see the Air as the benchmark to beat.

Another analyst, Topeka Capital Markets’ Brian White, also mentioned the hard sell ultrabook makers face in a Monday research note to his clients.

“Our checks … indicate that [ultrabook] price points will not reach the US$699 level this year that we believe is necessary to lure consumers into this new notebook category,” wrote White. “However, we expect prices to trend lower in 2013. But with Apple’s MacBook Air priced as low as US$999 and an upgraded version expected at WWDC, this week, we believe consumers will have a difficult time justifying an ultrabook purchase.”

And there’s precedent for the position Apple’s in with the MacBook Air.

“It’s the same thing as with the iPad,” Gillett said. “Other tablet makers can’t match Apple’s prices with a comparable device.”

ISI Group’s Brian Marshall, remained bullish on Macs after Apple’s announcements.

While Marshall did not address the Air price cuts in a research note to clients on Tuesday, he said that the Mac “is positioned to continue taking share.” Marshall has estimated that Apple will sell 13 percent more laptops in the quarter that ends June 30 than the same period the year before, but will be flat in the third quarter.

Along with the price cuts to three of the four Air models – the lowest-priced configuration, the entry-level 11in MacBook Air, remained at $1099 – Apple also boosted the RAM to 4GB across the board; swapped in Intel dual-core processors from its new third-generation “Ivy Bridge” architecture, the first to use a 22-nanometer manufacturing process; and equipped all with Intel’s HD Graphics 4000 chipset, which Apple claimed was 60 percent faster than the HD Graphics 3000 that it replaced.

The new MacBook Airs went on sale Tuesday at Apple’s retail and online stores and at some authorised resellers.


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