Apple Is Still Giving Its Competitors Headaches

The yearly developer showcase that is Apple's (AAPL) Worldwide Developer Conference [WWDC] kicked off with a keynote, once again sans-Jobs, but was packed with several software and hardware announcements.

Consider Palm's (PALM) highly touted Pre smart phone sold well in its first weekend, the landscape for telecom mindshare had shifted away from Apple for at least a short while. Analysts' early estimates point to sales of about 50,000 Pre devices in the first weekend for Palm, which compares to about 270,000 devices when the original iPhone went on sale and 1,000,000 units for the iPhone 3G. While it may be unfair to compare launches, since Sprint is a much smaller carrier compared to AT&T, and the iPhone 3G launched in a multitude of countries, it's the media that counts. Palm made a good sized dent during the Pre's announcement; sales will have to continue to deliver if it hopes to turn that dent into a crack.

But when Apple takes the stage for any event, competitors in each line of business must be anxious, hoping to be able to breathe a sigh of relief as the rumors come and go with little to no surprises. At the event, it seems every business Apple is in, it made headaches for its competitors.

The Computer Hardware business: Apple reduced pricing on virtually all of its machines, turning the well-designed aluminum laptops into a family of MacBook Pro machines starting at $1199 for the 13 inch computer formally known as simply a MacBook. The slim MacBook Air also got a price cut and Apple kept the $999 price point on the previous generation white plastic MacBook. The only model in the line to keep only the MacBook name.

The Computer Software business: Mac OS X Snow Leopard, branded and versioned like a full OS upgrade, was priced like it was in a going out of business sale. Just $29 for the next version of Apple's Operating System due in September; this has got to make the folks at Microsoft (MSFT), who are rolling out Windows 7 a month later, a little bit edgy.

The Phone business: Apple repeatedly said, it didn't want to leave a price umbrella for competitors, and has finally publicly brandished an iPhone on the world for $99. While unveiling a 'newer, better, faster, stronger' iPhone 3GS, (sounds like a Porsche doesn't it?) the company kept its $199/$299 pricing for the new models, setting the existing iPhone at the magic 99 figure. This puts tremendous pressure on the makers of Blackberries and Androids, and especially the Pre, which is $199 after a $100 rebate.

Many hoped Steve Jobs would make at least a minor show-stopping appearance; the rumor mill still has Apple's iconic CEO returning to work at the end of the month, which will put several analysts and many potential investors at ease. Apple's year-to-date run up of 69% has showed that Investors feel the company can survive without Steve or they are already sure he will return. However, the company still stands $60/share away from those gaudy 2007 highs, with business models that combined are selling more devices than ever.

Disclosure: Author is long AAPL

Comments

[Economyst:]

So where can I buy an Iphone for $99 without a contract? Why do you still tout the subsidised price of the Iphone and not the cost of the device and airtime over the contract period which is the true cost of the device.

So who buys an iphone for $99 and then doesnt pay for airtime. AT&T and Apple make their money back on the hiked charges over the contract.

Do you just buy a car and never fill it up? So when you compare like for like then you will see the true cost comparison.

Jun 09 12:16 PM

[Chris Kraso...:]

Well of course $99 is the subsidy price, but this isn't just an iPhone specific thing. Every carrier in the world, on virtually every phone in the world offers some sort of subsidy. So whether you pick up an iPhone, a Pre, some Sony Walkman phone or a Nokia, your phone company is picking up part of that tab.

I don't believe a car analogy is effective in the same way as cell phones because it is not as if Exxon Mobil pays for half the car but then only lets you fill up at Exxon Mobil owned stations for the next 2-3 years and if you "roam" to other stations you pay twice as much per gallon.

The subsidy is part of the phone business and seemingly always will be.

--
Chris

Jun 09 01:27 PM

[Elizabeth D.:]

Economyst, I wonder whether that's a fair comparison. If you want to compare apples with apples, perhaps we should compare the price of an iPhone 3G/GS sans contract with the Android and Pre sans contract. I'm sure the iPhone will still be competitive price-wise.

Jun 09 01:32 PM

[John Inman:]

Formally should be formerly. feel free to delete.

Jun 09 02:21 PM

[Economyst:]

Elizabeth Android is an o/s not a phone so that comparison ends. Apple is feeling the pinch in the hardware market with its pricing - this will affect its margins no doubt now will it have enough extra sales to counteract the lower margins on each laptop?

Jun 09 05:47 PM

[billddrummer:]

On Jun 09 01:27 PM Chris Krasowski wrote:

> Well of course $99 is the subsidy price, but this isn't just an iPhone
> specific thing. Every carrier in the world, on virtually every phone
> in the world offers some sort of subsidy. So whether you pick up
> an iPhone, a Pre, some Sony Walkman phone or a Nokia, your phone
> company is picking up part of that tab.
>
> I don't believe a car analogy is effective in the same way as cell
> phones because it is not as if Exxon Mobil pays for half the car
> but then only lets you fill up at Exxon Mobil owned stations for
> the next 2-3 years and if you "roam" to other stations you pay twice
> as much per gallon.
>
> The subsidy is part of the phone business and seemingly always will
> be.
>
> --
> Chris

Or, you can just pay the freight for those bright, shiny phones, without a subsidy. Then your Palm pre costs $299, the original iPhone costs $199, and the higher horsepower ones run anywhere from $349-$599, depending on where you buy them.

I'll take the subsidized price, thank you very much.

Jun 09 07:59 PM

[Elizabeth D.:]

"Elizabeth Android is an o/s not a phone so that comparison ends. Apple is feeling the pinch in the hardware market with its pricing - this will affect its margins no doubt now will it have enough extra sales to counteract the lower margins on each laptop?"

Not really. You knew what I meant: The G1. Don't cop out because of semantics.

Jun 10 07:55 AM

[mollytjm:]

good article and really points up Apple's strength. every tech business out there must be hoping Apple doesn't decide to do THAT one.
and of course the car analogy doesn't work unless you know how much each person will pay for gas during the year!
i was happily surprised at the $29 for the Snow Leopard update and eagerly await it.
i think Apple will remain a good stock for long term investment. They seem to have it all...name recognition and respect (even by independent studies), loads of $$$ and, most importantly for a tech company, good AND FAST innovation.
long APPL

Jun 10 10:03 AM

[Economyst:]

Making statements and not backing them up.

www.expansys.com/d.asp...
HTC Magic (Google Ion/G2) latest version not the G1 £504.99

www.expansys.com/d.asp...
Iphone 3G - (not the latest version) £639.99

www.expansys.com/d.asp...
G1 - £319.99

You said the Iphone was competitively priced re the G1 sans contract. I suggest you do some actual research before you post. It's not semantics just plain hard facts.


On Jun 10 07:55 AM Elizabeth D. wrote:

> "Elizabeth Android is an o/s not a phone so that comparison ends.
> Apple is feeling the pinch in the hardware market with its pricing
> - this will affect its margins no doubt now will it have enough extra
> sales to counteract the lower margins on each laptop?"
>
> Not really. You knew what I meant: The G1. Don't cop out because
> of semantics.

Jun 12 06:55 AM