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I'm a (for now anonymous) manager of a long-short fund which is not open to external investors. I have extensive experience on Wall Street and in the technology industry. I look for strong trends and reasonable valuations (GARP?), particularly in the technology and media sectors. Recently, for... More
  • Why Apple's Laptop Business will Crash in 18 Months  3 comments
    Jul 26, 2009 02:46 AM | about stocks: AAPL, GOOG, MSFT, DELL, HPQ, INTC, AMD

    NPD recently released data showing that for computers over $1,000, 91% of the spending goes to Apple. Adding a veneer of analysis to that data, MG Siegler claims that "Apple is a Porsche and PCs are a Camry":

    That’s not to say the Camry sucks or that the Porsche is perfect. They’re just two different cars that cater to different markets.

    Note the implication that Apple isn't threatened by low price PCs just as Porsche isn't threatened by Camrys.

    The problem is that the Porsche-Camry thesis is disproved by a datapoint from Apple's own conference call, in which it revealed that Apple sold out of its cheapest MacBook laptops.

    That suggests that consumers (in contrast to businesses) are willing to pay a premium for OS-X because they prefer it so much to Windows. But as soon as cheaper Macs become available, they buy them.

    In other words, this isn't Porsche vs. Camry, it's that the Wintel model is broken by poor product quality from Microsoft. My guess is that many consumers would be happier with cheaper Macs with less flashy hardware, but are being forced to pay up because in practice buying an over-spec'd Mac is the only way to avoid Windows. (Linux isn't perceived by consumers as a viable alternative.) For example: Do all the purchasers of MacBooks really want to pay up for a one-piece metal body? 

    There are therefore two risks to Apple. First, Microsoft may get its act together, with Windows 7. In that case, consumers who are being forced to pay $1,100 for the cheapest MacBook Pro will quickly trade down to $500 Wintel laptops. 

    The second risk to Apple is that the OS loses its importance as more and more functionality moves to the cloud. Like many other people, I have a Mac and love it, but I'm using fewer and fewer local features. I no longer use Apple Mail or the Mac address book because my firm uses Google Apps. And increasingly, we're also using Google docs and spreadsheets. If I had a good online solution for my music, photos and document storage (the long awaited Gdrive?), I'd only care about the OS to get me booted up and online fast. 

    What's the chance that either of these risks will turn out to be real? There are early signs of Microsoft fixing its OS problems. This glowing review of Windows 7, for example, comes from a devoted Mac fan. And cloud services like Google Apps continue to grow, and Google has announced Chrome, an operating system tailored for them.

    Meanwhile, netbooks are a threat to Apple despite its protestations to the contrary because the price difference between Apple's hardware and the cheapest available non-Apple laptops continues to grow.

    Windows 7 + Google Apps and Chrome + netbooks. Let's see how Apple's market share looks 12 or 18 months from now.

    Themes: OS Stocks: AAPL, GOOG, MSFT, DELL, HPQ, INTC, AMD
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This post has 3 comments:

  •  
    Interesting.

    1) I think that AAPL actually suffers from its underdog mentality - the moment it tries to grow into the 'mainstream' market, it will lose its constituency. This may not be fatal if it can grow market share faster than it loses its soul, but it will definitely mean lower margins, as well as loss of its brand mystique. To me, that also means there are strict limits to how much more it can grow.

    2) I suppose your main point is that AAPL's laptop future will be (inversely) tied to the success of the netbook. I don't know about you, but I for one regret purchasing my $1100 Vaio now that netbooks can be had for $300. When I bought my laptop, computers that size were still going for $2000 up.
    Aug 03 05:22 PM | Link | Reply
  •  
    Certainly agree with you regards cloud computing making a heavy impact on the OS. Camille Mendler at Yankee Group maintains an excellent blog that is well worth following on this topic.
    Aug 13 04:39 AM | Link | Reply
  •  
    Another problem is large corporation will never adopt OS-X. The reason is that in terms of security Windows is getting better and better while OS-X is very bad.
    Aug 25 09:35 PM | Link | Reply
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