[toadkick]

I don't buy it, and this article doesn't really make a strong case for it either. If the MB Air is a strong seller (and by all accounts it is), what sense does it make for Apple to drop the price down $200 to "compete" in a segment where it is already dominating? Clearly other "ultrabook" makers are already having a hard time competing at even the $999 price point, so there's no need for Apple to eat into its (presumably healthy) profit margins for the MB Air. With that said, I wouldn't mind if this was true, I would have a hard time turning it down at that price. The only way I could see this happening is if Apple takes a similar approach as it does with iPhones (and now iPads), where they keep the last gen hardware on the market at a reduced price when they update the lineup. But still...a $200 price drop seems unrealistic.

[gte910h]

Maximized profit is achieved by hitting profit X unit sold

If unit sold goes up by more than the lost per unit profit, then that's a winning proposition.

If people convert to the Apple brand, then Apple is going to make tons more than just that first sale. SSD prices also have probably REALLY made that 1k MBA a high profit device (they dropped a ton in the last year)

I predict the $800 MBA will just be this years 1k MBA.

See: The iPod Nano, the still sold iPhone 3GS (for $0 with 2 year contract), etc for past downmarket moves.

[achompas]

This comment isn't clear, but you make a few good points.

Short-run profits are maximized by producing at the point where marginal benefit = marginal costs (I think you state as much: "If unit sold goes up by more than the lost per unit profit, then that's a winning proposition."). Apple might want to produce these if the cost equation works (it might not--see below.).

You're also addressing the halo effect ("If people convert to the Apple brand, then Apple is going to make tons more than just that first sale.") This is anecdotally true: after I bought my first iPod in 2004, I purchased my first Mac in 2005 and now purchase Apple products as I'm happier in their ecosystem.

With that being said, what will Apple cut back on to generate large margins for a $800 MBA? Do they decrease storage? Produce a smaller (9.6") laptop? I really don't see how they go to $800 and preserve margins.

[gte910h]

>I really don't see how they go to $800 and preserve margins.

When manufacturing electronics, the cost curve has HUGE fixed cost elements (design, factory setup, supply chain setup, quality control adjustments), then relatively few marginal cost items (actual materials and shipping). Additionally, in tech, storage and ram of a given size typically gets cheaper year after year. SSDs have dropped precipitously from about $2 a GB wholesale to about $0.78 or less a GB wholesale.

So while they may only have had $50-100 profit on the newest 1k MBA on release day, they probably have 2-3 times that by now on the line. They can still sell it profitably (most likely) at this point as they get no more fixed costs with regards to the product.

Now you say 'Why not keep selling at 1k?'. The reason that doesn't work is because they're releasing a new line. So this older design (current 1k MBA) is just going to be obsoleted if they don't make a 800 MBA. They'll go back to the same initial high upfront cost 1k MBA.

Sure, some of the 800 MBA sales will be cannibalization of the 1k MBA sales they'd make this year. However, as I mentioned before, electronics have a very high start up cost for a new line, per item profit will actually be pretty similar between the new line and last years line, but they'll sell more total units, making higher profit.

[toadkick]

Well, typically Apple just sells all of the stock of their current Macs when they are about to release a new model. The rumor mill usually kicks into high gear around the time all of the retail and online stores start running low on stock. In fact, with Macs, they typically do just upgrade the hardware and keep the price point the same on the newer models. I'm not saying that it's impossible that Apple would release an $800 MB Air, just that it would be atypical for them, and it seems unlikely. Maybe if this story offered some actual evidence for why Apple would drop it's prices, but it didn't. All it says is "Somebody somewhere said so", and continues on to actually weaken it's point by saying that everybody else in the "ultrabook" segment is cutting back production, presumably because they aren't selling well vs. the MB Air.

[gte910h]

"Suppliers" said so. That is evidence? Same way we knew retina was coming. They may be unreliable, but it's still evidence.

[toadkick]

It's one thing for suppliers to leak info on hardware they are supplying, but I'm sure Apple doesn't give inside information such as end product pricing to them. It's BS. And the fact that it's coming from Digitimes makes it even more suspect.

[toadkick]

It's one thing for suppliers to leak info on hardware they are supplying, but I'm sure Apple doesn't give inside information such as pricing strategy to them. It's BS. And the fact that it's coming from Digitimes makes it even more suspect.

[achompas]

SSDs have dropped precipitously from about $2 a GB wholesale to about $0.78 or less a GB wholesale.

Has this happened recently? I know retail != wholesale, but I haven't seen SSD prices drop at NewEgg for some time.

[gte910h]

http://www.anandtech.com/show/3756/2010-value-ssd-100-roundu...

http://www.tomshardware.com/reviews/best-ssd-price-per-gb-ss...

http://www.amazon.com/s/ref=nb_sb_noss_1?url=search-alias%3D...

Look at the prices for a given manufacturer over time. These 3 links show 2008, 2010, 2011, and 2012

[achompas]

Thanks for the tip--I held off on an Intel 160GB for $250 back in January, and now the same price gets me a 256GB!

[podperson]

Digitimes is completely worthless as a source of info on Apple. (They're right sometimes insofar as a stopped watch is right twice a day.)

That said:

1. Apple is pointedly not afraid of cannibalizing its own markets.

2. Apple is pointedly thinking in terms of "the Mac should respond to the iPad as a competitor" and this basically puts the iPad + keyboard case directly in competition with the Macbook Air (expect the SSD capacity of the Air to be reduced or the iPad to increase -- no way a 64GB Air sells for the same price as a 64GB iPad).

3. Now that the Mac is decidedly not central to Apple's revenues, expect Apple to rethink its Mac pricing in (to competitors) scary ways. Apple can afford to license its OS to third parties, and/or replace the Mac Pro with a dongle-based OS X license (buy whatever beastly workstation you want, and install Mac OS X Workstation Edition on it).

4. Apple really has no-one to compete with but itself at this point. Its competitors are a joke.

[toadkick]

Yeah, Digitimes is notorious for being completely wrong about Apple's plans.

#1 and #2 are fair points, in light of the fact that the iPhone completely cannibalized the iPod market. But, the amazing iPod sales weren't going to continue forever, and I think Apple just took the next logical step when they released the iPhone.

As you mentioned, an $800 MB Air would be in iPad + Keyboard/other accessory price range territory, which could certainly cannibalize iPad sales. But in this case it doesn't make much sense to cannibalize the still young and very profitable iPad market with a product that has been around much longer, has historically had low market share, and doesn't have the same "new and cool" factor.

#3 I don't see happening as long as Apple still intends to sell Macs, because that would dilute one of the things that makes a Mac a Mac (the combination of the hardware + Mac OS X), and they've fought pretty hard to keep Mac OS off of other machines.

[netcan]

I would add another point to that. Until a few years ago Apple built relatively expensive products and tried to make them good enough that buyers would want them enough to pay more. With Macs and to some extent with iPods that let Apple collect a nice big share of the market's profits, but not much of the marketshare.

Now, they've learned to make products price competitive without sacrificing quality or much of their profits. iPhones and iPads are not a more expensive option. They stay well away from the low end, but they are not expensive relative to the competing products especially those with similar specs.

Thats a whole other kind of strategy ('penetration' they called it at Uni) and maybe they're bringing it to the mac.

[jsnell]

iPhones clearly are a more expensive option. It's just that in some markets the cost difference is hidden from the final customers, with the operator eating the difference. An unlocked 3GS (three years old!) costs about as much as an unlocked Galaxy Nexus.

Now, clearly some people place enough value on iOS that they're willing to pay the comparatively expensive prices (or move to another carrier that subsidizes the iPhone sufficiently). Good for them. And good for Apple that they're able to sell phones at absolutely staggering margins without anyone grumbling about the cost. But let's not pretend they're competing on price.

[stuff4ben]

Exactly! I don't recall many times (if ever) where Apple has competed on price. Gotta keep those margins healthy. To me it seems the article is link-bait.

[viscanti]

The year old iPhone and iPad seem to be pretty good examples of Apple competing on price first. They're able to, because they're selling older (cheaper) components in a product that they've already paid for the design/development/engineering for. It's not impossible to imagine that Apple would sell the current low-end version of the Air for $200 cheaper than it's current price. Doing so, should help them appeal to a new demographic of laptop buyers who buy on price first, and are willing to sacrifice performance. The same people who buy a 2 generation old iPhone for $1 are the ones who may be interested in a $799 Air.

[toadkick]

I don't think that's competing on price first, I think that's a graceful and inexpensive way to increase market share in a very competitive mobile environment. From everything I've read, it's the $0 with contract 3GS that is accomplishing this, and I don't think the people who would get a 2-year old iPhone because it's free are the same kind of people who would spend $800 on a laptop, regardless of the brand. I don't think the drop from $1000 to $800 would really be that compelling to them, because they likely aren't type to care about getting the super-thin awesome hotness with a small hard drive and no optical drive at a significant cost over a run-of-the-mill Dell (or comparable) laptop. The Mac has never had huge market share, and their Mac business brings in a scant amount of profit compared to the iPhone and iPad business, where they can much more afford to lose a small amount of profit in the interest of increasing market share. I don't see why they would kneecap themselves by reducing the price so much just to increase market share, when they make such a nice margin already with what little market share they do have.