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by achompas
5151 days ago
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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. |
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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.