Apple's Refreshed Macs an Unlikely Catalyst of Growth - RBC

Apple Inc. (AAPL) may have refreshed its line of Mac desktops but it didn’t provide any relief on prices.

Mac Pros, Mac Minis and iMacs have been updated with faster processors, more memory, larger drivers and NVIDIA (NVDA) graphics chips. The Mac Pros will be available next week but the iMacs and Mac Minis are out now. While pricing in the U.S. is essentially unchanged, Apple raised the cost for a Mac in Europe by an average of 11%.

Despite the hype, refreshed iMacs are unlikely to be a material catalyst as technical improvements at the same or higher prices do not provide a compelling reason for users to upgrade in a period of deteriorating consumer spending, said RBC Capital Markets analyst Mike Abramsky. However, the new Mac Pros may drive some professional upgrades.

He said the refresh suggests Apple believes it can sustain above-industry pricing via innovation, and it is trying to preserve gross margins by updating specifications at the same cost or increasing pricing to offset higher costs.

Mr. Abramsky told clients:

"However, we see elevated risks to demand for premium priced Macs should some consumers defer or opt for less expensive competitive alternatives within the tough environment."

He also noted that Macs cost an estimated 70% more than the industry average selling price.

The analyst also said that if Apple were to cut prices or introduce lower-cost models, its gross margins (30% to 40% on desktops versus 15% to 20% for its peers) could be at risk.

So with Macs accounting for an estimated 38% of Apple’s forward twelve month revenue, Mr. Abramsky sees sustained elevated risk to the stock’s premium valuation multiple

“as Mac growth and/or margins face possible ‘downshifts’ amidst a worsening consumer recession, and see possible revaluation on revised growth/margin expectations, reduced visibility, and renewed uncertainty re leadership.”

The analyst maintained an “underperform” rating on Apple and a price target of $70 per share.

Comments

[Mark Benedict:]

SOOOOO Tired of the talking point "Apple needs to drop their prices to have any chance".

First: why drop prices if you are hitting your numbers (the real ones not the conservative estimates Apple always tries to con us with). I would rather see slow and steady movement rather than a jittery hand on the wheel.

Second:This guy is clueless as to what actually happened. Doesnt he realize that the mac mini has been updated after 2 years? Basically the system was essentially unbuyable before the update, and after is a nice little machine for $599. Perfect machine for switchers who already have keyboard/mouse/monitor... I think the user experience would be better with a iMac, but...$599. I am switching my mom to one from a 2 year old Dell. I would have bought one for the office if it had shipped a month ago (bought a MacBook Pro instead)

Mar 05 06:49 AM

[phelix_da_kat:]

Also, INTEL are having a major release in 3Q09:

www.engadget.com/2009/.../


We already saw the Mac PROs have a 1 month head start over the market with the Quad-Core Intel Xeon “Nehalem” processor.

I would expect Apple to get first dibs on Calpella too.

Mar 05 07:03 AM

[Murphy Mac:]

These cost comparisons mean nothing. Abramsky assumes that the software / OS that ships with a PC is of equal value to software / OS that ships with a Mac.

Does the PC maker have a presence in your mall - so you can take your HP or Dell in and receive help with software or hardware issues the day they pop up?

There are other factors in the price besides what's on the sticker.

Mar 05 08:05 AM

[User 370063:]

After buying my first mac four years ago. I have added a mac for three more of my five children since then. WIth only one PC left in the house, and difficult finacial times ahead. I still will not buy any machine runing anything but MAC OSX. It's that simple I will get a MAC sometime this year. You get so much more with a MAC besides none of the problems. When will MSFT port it's OS to a unix core like every other OS on the planet.

Mar 05 08:18 AM

[Murphy Mac:]

People should read Show Stopper - it's a book about how Windows NT was developed. Then they would see Windows is a dull COPY of UNIX. It was like they tried to paraphrase all the functionality, which explains so much about how Windows behaves. Good book.

www.amazon.com/Show-St...




On Mar 05 08:18 AM User 370063 wrote:

> After buying my first mac four years ago. I have added a mac for
> three more of my five children since then. WIth only one PC left
> in the house, and difficult finacial times ahead. I still will not
> buy any machine runing anything but MAC OSX. It's that simple I
> will get a MAC sometime this year. You get so much more with a MAC
> besides none of the problems. When will MSFT port it's OS to a unix
> core like every other OS on the planet.

Mar 05 08:23 AM

[See through it:]

This analyst has been repeatedly wrong regarding Apple. He has no credibility with those in the know and will continue to lose credibility with the rest. I purchased a new Imac yesterday and will purchase the new mini for many family members.

Mar 05 08:50 AM

[User 208961:]

RBC (Royal Bank of Canada) disclosure information: RBC is a major investor in RIMM. In addition, RBC’s Chief Operating Officer, Barbaras Stymiest, sits on the Board of Directors at RIMM.

Mar 05 09:24 AM

[Petoveritas:]

Abramsky estimates Macs cost 70% more than the industry average. Interesting, because Yair Reiner from Oppenheimer took the iMac and did a spec-by-spec comparison with comparable Dell and HP machines. His surprising conclusion... iMacs are "a better value than competing Windows-based products - ($100-$250 cheaper [though it lacks a TV Tuner, ~$60-$100 upgrade])”

apple20.blogs.fortune....

Mar 05 09:25 AM

[uncleralph:]

The last this AAPL needs to do is make a play to bottom in terms of pricing. AAPL has the luxury of keeping their pricing on a steady course and not give into price destruction. Remember it is easy to lower prices, much harder to raise them.

I for one was waiting for the 'refresh' to purchase my new iMac - and they did lover prices (perhaps slightly) on a couple of their product, but no more than they have in past upgrade cycles.

Mar 05 09:38 AM

[Stuff and N...:]

Abramsky said "70% more than the average selling price" - that is, if you average all the stuff they sell, pro machines right on down to netbooks. Abramsky's probably right about that. But Apple has already said that they don't know how to make a $500 laptop that's not a piece of junk, and that it's not in their DNA to ship junk. Many analysts want Apple to join the hardware cost race to the bottom, destroying their margins in the process. Apple's products aren't luxury items, in the sense of a "luxury" like a Prada purse; they are tools that can be used to generate value - and yes, they can be enjoyable and even be status symbols. But underneath it all, they are still computers, and those are used as means to an end. If they make you more productive, or they make you a lot happier while allowing you to operate at a comparable level of productivity, then there is a reason to pay extra for them. Apple therefore charges extra.

Apple's market share is growing for those segments in which they compete, so they have apparently figured out a model that works. Could Apple sell more units by lowering price? According to the law of supply and demand, that's how it's supposed to work. If Apple lowered the price too far, they'd probably see declines in customer satisfaction, since they'd have to skimp and cut corners to maintain reasonable margins. One of the reasons I buy Apple products is because I prefer having a superior customer experience relative to, say, Dell.

Abramsky's analyses are interesting to me in that he frequently gets the data right, but always manages to interpret things in the worst possible way for Apple. His firm is in the tank for RIMM, and as far as I'm concerned, he's completely tainted.


On Mar 05 09:25 AM Petoveritas wrote:

> Abramsky estimates Macs cost 70% more than the industry average.
> Interesting, because Yair Reiner from Oppenheimer took the iMac and
> did a spec-by-spec comparison with comparable Dell and HP machines.
> His surprising conclusion... iMacs are "a better value than competing
> Windows-based products - ($100-$250 cheaper [though it lacks a TV
> Tuner, ~$60-$100 upgrade])”
>
> apple20.blogs.fortune....
>

Mar 05 09:45 AM

[User 370171:]

If Abramky would insert the flashlight then everyone else could find his arse and hide his comments there...What a nerd

Mar 05 10:11 AM

[spaceage:]

As a web consultant who operates many web sites, I can add some emperical data which indicates to me that Apple is winning the war: on many sites I operate, Safari is now the majority browser, with IE and Firefox each running 50% behind Safari (ie. 50% Safari, 25% IE/Firefox). That is a massive sea change that has rapidly accelerated in the past 12 months.

These analysts are nothing more than rank amateurs who have to write some crap to keep their jobs...they have no more knowledge or insight than my cleaning lady does about this market.

Mar 05 10:12 AM

[Roy Flande...:]

My I suggest that Mr Abramsky go out and grab his daily Big Mac with Cheese, come back, do some deep breathing. Turn of that nice, cheap PC and drive on home in your second hand Hugo, and simply take a nap. We really DO need more thrifty butt heads like you Abramsky. Though you might not stimulate a thing - is "unstimulate" a verb?- it's really exhilarating to know that all us fat cats can come and do our silly small part by "wild and crazy spending" on an Oh-So-Overpriced, and fabulous Mac. (So many folks out there are just so grateful that folks like you have self-selected out; keeps the boring, beige butt heads like you out of the "Cult" of Macintosh. I have a couple 20 cent off coupons which my housekeeper left here. It could really ad up in your next shopping binge for Tuna and Hamburger Helper.

We're all lucking to have a prudent watchdog like you looking out for our very own money- like Pelosi and the very disappointing Obama are already enough! (Oh-and what a brave forecast on AAPL. Really letting it all hang out with at $70! price) Go wild! Right on brother- Stimulate THIS!

Mar 05 10:14 AM

[goodjello:]

What the writer fails to realize is that these updates are long overdue. So while they may not do much to bring in new converts, the Mac faithful have been waiting for these for months, thus there will be a strong initial surge in sales because of the pent-up demand. It will be sufficient to allow Apple to handily beat all forecasts for the current quarter.

Mar 05 10:17 AM

[offtheobt:]

I have an iMac and a PC in my office, another iMac at home. I turn on the PC once a week for the one piece of software not available on Mac. I am planning on buying a new Mac Mini in the next week or so. I have plenty of PC's available at garage sales, hardly ever see a Mac. Never had a virus on a Mac, lots of them on PC's. I will happily pay a premium for a Mac, I have three Mac stores in town. PC's? forget it. Cheapscates and the ignorant will buy cheap PC's, and get what they pay for.

Mar 05 10:17 AM

[MoQuality:]

Where would people go if they wanted the best? There are Ford Pintos
…and there are the Mercedes Bienz. A matter of focus. You choose!

Mar 05 10:22 AM

[beech_35:]

Despite the fact that "Macs are more expensive" gets parroted year after year, it's simply false. It always has been. Compared feature for feature, Apple computers cost about the same as anything made by Dell or HP -- except for the high end Mac Pro, which is actually cheaper. Apple simply doesn't sell stripped computers with unrealistic starting prices. Buy a Dell at its teaser price, then add enough memory, wireless networking, useful HD size, built-in webcam, graphics cards that don't choke, and you'll spend more. Don't forget the obligatory cost of anti-virus software and maintenance. Then, consider the fact Apples last longer, and the cost of a Mac over its useful life becomes considerably less than anything else.

Unlike certain analysts, consumers put their own capital at risk when they buy expensive stuff like computers. They do their research, and guess what -- they're packing Apple's retail stores today more than ever.

> Despite the hype, refreshed iMacs are unlikely to be a material catalyst as technical improvements at the same or higher prices do not provide a compelling reason for users to upgrade in a period of deteriorating consumer spending,

Really? I just bought a beautiful 24" iMac to replace the last iMac I bought -- nine years ago. It cost about the same - not higher. So I've been spending $167 per year. I can easily sell the old one for $300 so make that $133 per year, every minute of it productive and hassle-free. What have you been spending on your crash-prone, virus-infested Windows junk?

Mar 05 11:17 AM

[jmmx:]

@ phelix

Macs more expensive? See this Fortune blog:

apple20.blogs.fortune..../

Not does the iMac 24" beat Dell & HP in most hardware categories, but it is actually the cheapest!

Mar 05 12:59 PM

[Skeptical Ben:]

This is right on the money. Day one I ordered fully loaded top-of-the line Mac Pro, this quarter will rock in spite of the bad economy. I wanted to buy a machine last fall, but looked online at the product cycles and figured they were due.... I doubt if I was the only one.


On Mar 05 10:17 AM goodjello wrote:

> What the writer fails to realize is that these updates are long overdue.
> So while they may not do much to bring in new converts, the Mac faithful
> have been waiting for these for months, thus there will be a strong
> initial surge in sales because of the pent-up demand. It will be
> sufficient to allow Apple to handily beat all forecasts for the current
> quarter.

Mar 05 07:12 PM

[Petoveritas:]

S&N, if you are going to include netbooks in the average price then you need to include the iPhone as part of the calculation. The iPhone IS Apple's "netbook", and I am sure there have been way more iPhones sold than any particular brand of netbook. I am extremely skeptical about Abramsky's 70% figure. It just doesn't sound right. He is obviously just looking at hardware, and not considering software bundles. There is a premium on OSX - a far superior OS to Windows Vista and not in the same league as the out of date XP. You also need to include an hourly cost for your time wasted removing and installing additional crap and software from a PC, and digging around for drivers, inorder to manage your music, photos, and contacts.

There are many hidden costs associated with PCs across the board, and any savvy consumer will eventually pick up on that.


On Mar 05 09:45 AM Stuff and Nonsense wrote:

> Abramsky said "70% more than the average selling price" - that is,
> if you average all the stuff they sell, pro machines right on down
> to netbooks. Abramsky's probably right about that. But Apple has
> already said that they don't know how to make a $500 laptop that's
> not a piece of junk, and that it's not in their DNA to ship junk.
> Many analysts want Apple to join the hardware cost race to the bottom,
> destroying their margins in the process. Apple's products aren't
> luxury items, in the sense of a "luxury" like a Prada purse; they
> are tools that can be used to generate value - and yes, they can
> be enjoyable and even be status symbols. But underneath it all, they
> are still computers, and those are used as means to an end. If they
> make you more productive, or they make you a lot happier while allowing
> you to operate at a comparable level of productivity, then there
> is a reason to pay extra for them. Apple therefore charges extra.
>
>
> Apple's market share is growing for those segments in which they
> compete, so they have apparently figured out a model that works.
> Could Apple sell more units by lowering price? According to the law
> of supply and demand, that's how it's supposed to work. If Apple
> lowered the price too far, they'd probably see declines in customer
> satisfaction, since they'd have to skimp and cut corners to maintain
> reasonable margins. One of the reasons I buy Apple products is because
> I prefer having a superior customer experience relative to, say,
> Dell.
>
> Abramsky's analyses are interesting to me in that he frequently gets
> the data right, but always manages to interpret things in the worst
> possible way for Apple. His firm is in the tank for RIMM, and as
> far as I'm concerned, he's completely tainted.

Mar 09 09:44 AM