Mac Musings

Best Non-Holiday Quarter Ever for Apple, but MacBook Sales Took a Big Hit

Dan Knight - 2009.04.23 - Tip Jar

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Despite pundits declaring Apple "doomed" if it doesn't produce a netbook right away or threatened because of the recession, the company posted its best non-holiday quarter ever with over $8 billion in total sales and profits of over $1.2 billion.

That's 14.8¢ of profit for every dollar taken in during the January to March 2009 period.

Recession Proof?

iPhone sales were up a phenomenal 123% - of course, it's available in a lot more markets than it was a year ago. iPod sales also rose, although by just 3%, while the Mac took a small hit with unit sales 3% behind the year-ago quarter.

Both notebook and desktop unit sales were down over the same quarter last year - 2.4% for MacBooks, 4.4% for desktops. Compared to the holiday quarter, when Apple had a brand new line of notebooks, MacBook sales dropped a precipitous 22.1%, while desktop sales - helped by refreshed models replacing aging ones across the board - rose an impressive 12.4%.

Macintosh quarterly unit sales, late 2004 to early 2009
Macintosh quarterly unit sales, late 2004 to early 2009

Everyone expected desktop sales to increase during the quarter, thanks to the Nvidia Mac mini, the Nvidia iMacs, and the Nehalem Mac Pro introduced at the start of March. If anything, desktop sales could be even better for the current quarter, since these improved models will be available for the entire time period.

What About Notebooks?

This is the first year-over-year decline in Apple notebook sales in at least five years. Apple hasn't sold so few notebooks since the 2007 holiday quarter, and there hasn't been such a quarter-to-quarter drop in the past 5 years.

What happened?

First of all, the new notebooks released in October 2008 sold very well in the holiday quarter, taking care of much of the pent-up demand to replace older MacBooks, PowerBooks, and iBooks. The unibody aluminum construction provided a compelling reason to buy new, and the end of the year is a time when many businesses buy new hardware so they can depreciate it in that year's accounting.

At the same time, the impact of the recession was hitting home with record unemployment, record foreclosures, continued declines in home value, and job uncertainty. At home, my house is worth less than I owe on it, and Low End Mac had its worst months in years at the end of 2008 - and so far 2009 hasn't been much better.

Uncertain of the future, people put the brakes on as far as unnecessary consumer spending goes. The new desktops helped Apple a bit, even though they were available for less than a month, but in a notebook market dominated by netbooks, MacBook sales took a real hit.

The Netbook Opportunity

It's hard to pinpoint exactly how big the netbook market is, as the definition varies, but at one point last September - before it created separate listings for netbooks and notebooks - 9 of the 10 best selling laptops at Amazon.com were netbooks. (The lone exception was the 2.4 GHz white MacBook.) Another report indicates that netbooks accounted for 30% of all notebooks old in Europe during the third quarter of 2008.

One of the most linked-to pages for the Mac Web last December was the Mac OS X Netbook Compatibility Chart posted on Boing Boing. This chart shows which features are some of the more popular netbooks when running Mac OS X 10.5. Interestingly, at this point the only netbook with full support comes from Dell, although MSI, Lenovo, and HP aren't far behind with one unsupported feature each.

There are different ways of looking at the netbook category. Some focus on price, some on size, some on the ubiquitous (so far) Intel Atom CPU. Apple COO Tim Cook says, "When I look at what's being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens." In short, nothing worthy of an Apple nameplate.

That hasn't stopped a growing community of people who want a Mac notebook smaller than the MacBook Air and/or more affordable than the MacBook White. Seriously, who wouldn't want a small, light, inexpensive, relatively rugged notebook with a 9" display at the same price as the 8 GB iPod touch with its 3.5" 480 x 320 display? And for those who want it, netbooks that convert to tablet mode are coming to market.

Apple has not ruled out producing a machine in the netbook space; it has ruled out most of the compromises found in low-end netbooks - shrunken keyboards, low resolution displays (sometimes 1024 x 600), and power that users wouldn't settle for in a larger computer.

The question isn't whether Apple will eventually enter the netbook space, but how. I see two alternatives.

Best for Apple

The most profitable solution for Apple is to produce a netbook that uses the iPhone OS. Why? Because it's a completely closed ecosystem - Apple controls the hardware, the OS, and what apps will be available through its online store.

I won't even predict the most likely scenario. The new device could be an overgrown iPod touch complete with WiFi and 3G support. Or it could be a more conventional netbook design with a real keyboard. Maybe a convertible that functions in notebook or tablet mode.

By building in 3G support, Apple could sell such a device through partners such as AT&T, Sprint, and Verizon - along with the same kind of "sign a 2-year contract" subsidy iPhone users receive. That could make it very affordable to the masses, and Apple's 30% share on all app sales would further improve profits.

Best for Us

The best solution for consumers is for Apple to produce a netbook that runs the true Mac OS as well as all of the existing Mac software. Although such a device could conceivably work in tablet-only mode, unless it has an easy way to dock a keyboard for field use, I don't see that at a practical solution. To address the needs of real computer users, it should have a real keyboard - full sized, not shrunken like today's netbooks.

The Mac netbook should be rugged, and it shouldn't settle for the single-core Atom CPU, wimpy 3-cell batteries, or tiny solid-state drives (SSDs). To keep it affordable, it should use the same keyboard found in Apple's other notebooks, and it should use a 2.5" SATA hard drive (with an SSD option). It should use a dual-core CPU, even if it's just 1.6 GHz, and it should have Nvidia GeForce 9400M graphics, leveraging the GPU found in so many Macs today.

The ideal would be a convertible notebook/tablet that includes 3G support so it could be bundled with a 2-year service contract with AT&T, Sprint, Verizon, etc. and have its price subsidized. That would help, because this won't be a $400 netbook. It will be a Mac with dual cores, real graphics, a real keyboard, up to 4 GB of RAM, a swappable SATA hard drive, and a higher resolution screen than is typical of netbooks (perhaps 720 x 1280 and measuring 11" on the diagonal).

This would finally be the successor to the 12" PowerBook that many have been waiting for - an even smaller footprint, dual-core Intel power, a widescreen display (which the 12" iBooks and PowerBooks never had), and minimal weight.

Killing off Hackintosh Netbooks

Apple could take one simple step to make this the subnotebook for the Mac crowd by compiling Snow Leopard to require a dual-core CPU. That would leave the Hackintosh crowd stuck with plain old Leopard, which isn't a bad thing. (The only Mac that would be left behind is the Core Solo Mac mini. If Apple did this, it should offer a trade-in for that model - or a free CPU swap to a dual-core processor.)

A Mac netbook won't fit many people's netbook category. It would have a small footprint and light weight, but it wouldn't settle for a single-core CPU, substandard graphics, a miniaturized keyboard, and a low resolution display. It would be less powerful than the 2 GHz MacBook, primarily for the sake of battery life, and it would be almost as capable.

Price? Not cheap. With a polycarbonate enclosure, maybe around US$800. That would include Mac OS X 10.6, iLife, and iWork, software that Hackintosh users don't get for free. And everything would just work - sound, video out, WiFi, and sleep, to name a few things the Hackintosh netbooks have a problem with.

Subsidize that with a 2-year unlimited use 3G data contract, and it could enter the price range of today's better netbooks. But best of all, it would be a Macintosh.

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Dan Knight has been using Macs since 1986, sold Macs for several years, supported them for many more years, and has been publishing Low End Mac since April 1997. If you find Dan's articles helpful, please consider making a donation to his tip jar.

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