Seeking Alpha

Apple (AAPL) has slashed prices for three 13" MacBook models. The price of the 13" retina...

Apple (AAPL) has slashed prices for three 13" MacBook models. The price of the 13" retina MacBook Pro with 128GB SSD has been cut by $200 to $1,499, and the 256GB model by $300 to $1,699. Meanwhile, the 13" MacBook Air with 256GB SSD has been cut by $100 to $1,399. Apple's 15" retina MacBook Pro models remain priced at $2,199 and $2,799, but both have been given faster Intel Core i7 CPUs, and the costlier model now sports twice as much RAM. The moves follow a quarter where Mac shipments fell 22% Y/Y, and revenue 16%. (PR)
Comments (48)
  • Margin compression for the investor and a few extra dollars in the pocket for the consumer.
    13 Feb 2013, 09:32 AM Reply Like
  • It doesn't necessarily mean margin compression. When a new technology comes out it's always more expensive at first. As manufacturing gains experience and efficiencies, the cost comes down. Additionally, sales demand picks up with a price reduction, increasing profit.
    13 Feb 2013, 12:54 PM Reply Like
  • Processors, memory, and harddrive prices have not come down as much as the price drops on these devices. Aluminum costs are roughly the same as launch. While we don't have much data on screen price levels, other than rough guesses from Nomura Research, it does not appear that those prices have dropped significantly. Manufacturing efficiency is possible, though as Apple indicated in the past, their unit labor costs are already very low.

     

    So I would place a little of the decline in prices on raw price changes, but another part on accepting lower prices to spur demand. That would increase raw revenues. This is also a somewhat flat time of the year for consumer electronics. Overall the iPhone and iPad are still the greatest revenue drivers for Apple.
    13 Feb 2013, 01:04 PM Reply Like
  • I'd bet on screen prices coming down or yields going up, as they now have actual experience making these things in volume.
    13 Feb 2013, 01:45 PM Reply Like
  • The problem we have seen in research reports is that component prices can get locked into contract runs. So component price drops may affect future products more than existing contract runs. Don't forget that Apple is known to be very good at negotiating contracts, meaning they already enjoy favorable component price levels at launch. Unless there is a shift in component suppliers during the run of a product, price drops are more likely to be acceptance of lower margins than they are a function of declines in component prices.
    13 Feb 2013, 01:52 PM Reply Like
  • Keep in mind that these models were introduced at a higher price point than previous models. Was that margin expansion? Probably not. So if they had higher costs, where did those cost increases come from? As you pointed out, aluminum is roughly the same, and the labor rate is likely the same. The difference was likely the cost of the screen and additional labor time in producing it. While I'm not arguing that the incremental cost of the retina display is now on par with the older displays, I would also point out that the price point is still higher than the standard display MBP.

     

    It would seem to me that there is good evidence that the incremental cost of the retina display is possibly falling, and Apple is taking advantage of it to spur more demand.
    13 Feb 2013, 08:36 PM Reply Like
  • You can see some of the cost issues in the yield problems that Apple identify. There was a higher refusal rate on finished iPhones than with previous devices, due to some added complexity in manufacturing. If we go further and compare the iPhone 4S to the iPhone 5, we can also find some cost savings in manufacturing, though a higher expense in 4G chips, which were not included in the iPhone 4S. According to Apple these were the higher cost issues on their phones.

     

    So if we compare that experience with phones to the manufacturing of laptops, the biggest increased in costs are the move to solid state drives and the improvements in the screens. There are less ports on average in the newer laptops, and an all soldered construction to speed up production and reduce some parts expenses. I would think that Apple has reduced costs on laptop assembly, though the rise in prices at launch may simply have been an attempt to test the price levels that the market would bear. We see this amongst some luxury automobiles, so that concept is not unusual. In the next quarterly Apple report we may get more detail in this, if the analysts ask about this on the conference call. My guess is that Apple priced too high initially, and are now correcting that to spur sales. I doubt contracts changed in the middle of production to allow added savings, and I don't see evidence that Apple switched suppliers in the middle of production.
    13 Feb 2013, 08:47 PM Reply Like
  • Apple must be coming with new models of Mac soon along with may be new product.
    13 Feb 2013, 09:37 AM Reply Like
  • Mac unit sales fell 22% and revenue 16% from Q1 2012 to Q1 2013 and you think Apple is coming out with a new model for Mac? Doubtful...
    13 Feb 2013, 09:46 AM Reply Like
  • Do you want to take a bet.? Apple will have new Macs for new college students after April.
    13 Feb 2013, 10:36 AM Reply Like
  • These MacBooks are likely being discounted, like the iPads before them, due to new models coming. And slump in MacBook sales, but let's keep in mind that ALL PC desktop & laptop sales are down, not just Apple's. Just watch: iWatch, iTV, China Apple Stores & new models there in China & here too. And yes lowered prices of old products is to be expected. Nothing to see here, move along. I predict 2013-14 is the year(s) when all the AAPL naysayers eat crow. Margin compression is inevitable given Apple's recent growth history & current competition & world economy.
    13 Feb 2013, 11:46 AM Reply Like
  • Plus do remember. One Mac sale is equivalent to 10 PC sales. Margins are much better on Mac than PC.
    13 Feb 2013, 12:18 PM Reply Like
  • iMacs are newly re designed and are great. I am using one and there is an incredible change in form and performance (speed, display,et.) I don't see problems in incremental innovation and see an irrational and over blown obsession among analyst on "disruption"
    15 Feb 2013, 04:29 AM Reply Like
  • Got to love 'em
    13 Feb 2013, 09:37 AM Reply Like
  • You have to probably double the sales of these products to make up for that loss of pure profit - kind of worrying for an investor.

     

    Part of the problem with being a premium product is that there aren't as many premium buyers so when you get as large as AAPL it is a lot harder to grow fast with this segment alone.

     

    It really does look like they are experiencing serious margin compression which does in fact explain the low PE for the stock.
    13 Feb 2013, 09:45 AM Reply Like
  • other PC manufacturers would DIE for Apple's so called compressed margins

     

    it's totally idiotic way of thinking that people expect Apple to have 80% market share, 80% YoY growth, and yet maintain 40+% GM ?? seriously ?
    13 Feb 2013, 11:36 AM Reply Like
  • mogando,

     

    You clearly did not read what I wrote. AAPL is valued on its historic margins not its margins relative to other manufacturers.

     

    A cut in prices is a pure cut in gross margin and profit. That's a serious decision and unless you make it up in volume it will lead to lower profits in the future.

     

    Do not fall in love with a stock because that definitely clouds your judgment.

     

    A great company such as AAPL isn't always going to be a great stock.

     

    Good luck.
    13 Feb 2013, 12:38 PM Reply Like
  • maybe, maybe not. no reason to favor one over the other. Without knowing sales of the $1700 13 retina, we don't know. I think they likely sold very few $1700 13 inch laptops.

     

    Like most, i would much rather get a non retina screen 15 than a retina 13, and the 15 is just $100 more. And someone willing to spend on the 13 retina probably has money to burn and would splurge a few hundred more on the 15 retina. the 13 retina was awkwardly placed in the line-up, a no man's land in my view.

     

    as for margins, the knee-jerk is that it would be bad, but lets think about this: with the price cut the 13 retina is just $300 more than the 13 non retina, which may prompt quite a few to get that over the non retina. So the effect of this is likely (very likely, now that i think about it) to bring up the average selling prices of the macbooks.

     

    Intuitively i think more people are likely to upgrade from 13 non retina to 13 retina than would have been willing to pay 1700 for the 13 retina before the price cut, so the net result is Apple makes more money.

     

    while i am speculating, so are you. My point is it is far from certain that this will harm margins, it could easily have the opposite effect. When thinking about product price cuts we need to look at the overall priduct mix and think about what the consumer is likely to do with these choices. it seems reasonable to me that this results in a lot more sales at 1499.
    13 Feb 2013, 02:04 PM Reply Like
  • Well said GaltMachine
    13 Feb 2013, 02:04 PM Reply Like
  • You just parroted what those talking heads say about "margin compression"

     

    did you REALLY expect AAPL to maintain historical margins while selling a $329 iPad mini ?

     

    AAPL's entire product mix has profoundly shifted in the last 10 years (from all Mac plus a bit of iPod to all iOS), so it's obvious that absolute profit is the best measure, not some artificial "gross margin" metric that's meaningless when product mix shifts so drastically.

     

    6 years ago, GOOG generates more profit than AAPL. Today, AAPL's profits are roughly in line with GOOG generates with revenue. Doesn't take a genius to figure out why GOOG is overpriced at P/E of 23 and AAPL is a huge bargain at P/E of 11.
    14 Feb 2013, 08:47 AM Reply Like
  • Big difference between software based services and hardware. Unless Apple shift to a software and services model, they are not really comparable to Google. The chances are quite good that people will still be using various forms of Google search, and companies will want information that Google collects, over the next 23 years. When we look at hardware products, it is tougher to predict continued demand for Apple hardware over the next 11 years. That's basically what P/E tells us in the simplest form.
    14 Feb 2013, 02:08 PM Reply Like
  • Competition to Google search services is rapidly increasing as well a diminishing their return income per click. I see FB with 1 billion users being a better play for targeted advertisers. With 1% viewers of a FB add represent 10 million hits.
    I saw best results with my FB adds that with Goog Search. We will see next round of quarter reports how goog will do.
    15 Feb 2013, 04:35 AM Reply Like
  • How many of you apple fanboys are still cheering for iCook for his leading the stock price down again?

     

    Market up again and apple is leading the down side on my thinkorswim list of 50 stocks.
    13 Feb 2013, 09:53 AM Reply Like
  • now it is BBRY leading the downside and AAPL is up 0.56% close to 470
    13 Feb 2013, 10:25 AM Reply Like
  • Agree!
    13 Feb 2013, 12:35 PM Reply Like
  • http://bit.ly/X96nAh

     

    Hedge funds dumped Apple shares, likely fueling stock drop
    As Apple stock dropped like a coin off the Empire State Building observation deck following the arrival of the iPhone 5 last fall, analysts offered a plethora of possible reasons for the quick descent. However, filings arriving this week have shown a likely culprit behind Apple's dip into bear market territory: Large hedge funds selling millions of Apple shares at nearly the same time, flooding the market and driving the price down.
    15 Feb 2013, 06:11 AM Reply Like
  • $1699 was waaay too high for the entry price of 13" rMBP, considering how much cheaper the 13" MBA for nearly the same specs (sans screen) and how much more powerful the 15" rMBP is for barely more money.

     

    I was very ready to upgrade from my late-2008 15" MBP to the 13" rMBP ... until I saw that unrealistic price tag. I ended up getting an entry level 11" MBA on sale at $699 instead.
    13 Feb 2013, 09:54 AM Reply Like
  • Not good.
    13 Feb 2013, 10:00 AM Reply Like
  • this figure take into account Q1 2013 was a week less than Q1 2012?

     

    Also to those moaning about how the stock fell on this news...it has rebounded and now up around 0.6%
    13 Feb 2013, 10:01 AM Reply Like
  • No, and did not take into account that some Macs were supply limited.

     

    Macs are doing much better then PCs in a weak PC market. The result at the end of the day will be a larger overall Mac share in the worldwide PC market.

     

    These price cuts are just noise. Margins will shrink slightly, but there is no doubt a new product launch in the next year. And, the price cut will drive continued increased sales of Macs relative to PC.

     

    When you look at the ASP of the Macs relative to average PC, and the relative market share, it is surprising they are doing so well. That's a testament to the AAPL brand and loyalty.
    13 Feb 2013, 12:34 PM Reply Like
  • Very happy with my Samsung Chrome laptop: looks like a macbook air, won't do everything a macbook air will do, but it only costs $249 postpaid from Amazon. It will boot up in 5 seconds and will do anything you do through the browser. No storage, no printing, no uploading, but for a 2nd, low cost "travel" terminal it's great. As I use gmail and the chrome browser, when I log on to the Samsung Chrome using my gmail password the chrome browser comes up with all the bookmarks from my desktop mac. And unlike the ipad, there's a real keyboard and touchpad. And if it gets lost or stolen, there's no personal data stored on it, and you're only out $249. Check the reviews on Amazon for all the details.
    13 Feb 2013, 10:02 AM Reply Like
  • Will check back with you in 6 months to see if it is still working.
    13 Feb 2013, 10:11 AM Reply Like
  • Also, realize in that cheap price you are providing valuable market insight to Google so they can target you all the better with ads galore, etc.

     

    Google knows :
    who you correspond with
    what you say
    what you search
    what websites you view
    what you buy
    what you do with their apps
    your location

     

    thats some valuable data my friend.
    13 Feb 2013, 12:21 PM Reply Like
  • "It will boot up in 5 seconds..."

     

    Like that matters. A MacBook wakes before you can fully open the lid.
    13 Feb 2013, 02:43 PM Reply Like
  • Absolutely it matters. Not everyone leaves their MacBook Pro in sleep mode. I go through a full shutdown each evening, and a fresh start-up each morning. In general I tend to feel that the system is more reliable going through start-ups, instead of constantly leaving it in sleep mode. This comes from 18+ years of owning Apple laptops. Obviously your mileage may vary, and some people have different preferences in how they use their computers.

     

    That stated, I'm really not that impressed with the Samsung Chromebook. I need to accomplish more on a computer than what Google Chrome currently allows one to accomplish. At the price point it is a compelling companion product, but I don't seriously think people weigh the choice between one and a MacBook. People who want that Apple logo on their products will not settle for something else.
    13 Feb 2013, 02:51 PM Reply Like
  • I am not being unreasonable to just ask Apple to maintain the current stock price and drop any more. Do what ever you need to with your cash to just support the stock price and not go down any further.
    13 Feb 2013, 10:11 AM Reply Like
  • "Slash"? $100 only? Hahahaha! How about 20-50% off for a start??
    13 Feb 2013, 10:19 AM Reply Like
  • These performance bumps and price drops are typical for this company, as anyone who has followed them for more than five years knows.
    13 Feb 2013, 11:18 AM Reply Like
  • New models on the way.
    13 Feb 2013, 11:31 AM Reply Like
  • Yep. They're the ones with the lower price.
    13 Feb 2013, 01:48 PM Reply Like
  • Tim Cook pandered to Mrs. Obama at the State of the Union. Al Gore's on his board. What does that say about the integrity at AAPL?

     

    As Robert Shiller points out in Irrational Exuberance, companies grow and slow in predictable cycles. Apple has had a long, incredible run.

     

    That the company is entering a new phase can't be blamed on Tim Cook. It's just what happens when companies like Apple and Microsoft and their peers reach maturity. And it's why Apple's PE has been relatively low compared with its growth rate. Everyone knew that it couldn't maintain its growth rate forever.

     

    The question: Will Apple become a Caterpillar and IBM or an Intel, HP, Sony and Microsoft?
    13 Feb 2013, 11:36 AM Reply Like
  • No big news here. Just normal pricing for product replacement of the old 13" macbook still being sold with the new 13" retina based model. The amazing thing here is the high prices still being had for the 15" retina. It must be really outselling the older 15" macbook.
    13 Feb 2013, 11:54 AM Reply Like
  • This is the end of Apple!
    (sarcasm intended)

     

    Not a "fanboy," whatever that is. Just an investor who has made a nice profit from this stock.
    13 Feb 2013, 12:40 PM Reply Like
  • Price cuts usually occur when products are ready to roll over into new ones.

     

    Usually occurs at the end of the summer.

     

    This is case of way too much inventory. Looks like the herd has figured out that AAPL is an overpriced hardware manufacturer.
    13 Feb 2013, 01:22 PM Reply Like
  • The real story for Apple is when prices will drop for iPhones. And whether new products will come on line fast enough to make up for the lowered profits from existing products.

     

    I think Apple has at most 12-18 months before margins on iPhones start to come down very seriously.
    13 Feb 2013, 01:28 PM Reply Like
  • Then stock will start going up. Apple need to report earnings like AMZN and Netflix. What Amazon made so far, Apple made more than that just in last quarter. Amazon is up 10 today and Netflix is up 8 today.
    13 Feb 2013, 01:40 PM Reply Like
  • @James,
    IMO AAPL has max 12 months before margins on iPhones start to come down very seriously.
    AAPL needs CVO urgently.
    13 Feb 2013, 02:04 PM Reply Like
  • The 13" MacBook retina has a market niche issue. Most people wanting a retina screen are going for the larger 15" model. If it's portability you're after, you aren't going to fork over the extra cash when you could satisfy your needs w/ a MacBook Air, the cheaper non-Retina model or even an iPad.
    13 Feb 2013, 03:40 PM Reply Like
DJIA (DIA) S&P 500 (SPY)