Apple getting ready for 'product transition'

Is it time for a price cut on the iPod Touch?

(Credit: Ina Fried/CNET News)

Let the guessing begin.

Apple Chief Financial Officer Peter Oppenheimer's decision to warn financial analysts Monday that Apple's fourth-quarter gross margins will be negatively impacted by a "product transition" should be enough to get the rumor wheels turning: of course, it doesn't take all that much. The remark came within yet another Apple's earnings report that produced stellar numbers for the previous quarter but an outlook below what Wall Street had been expecting.

Oppenheimer deftly avoided several questions from analysts who tried to get a little more information on just what that "product transition" might involve. He used the exact same phrase last year in July during an earnings call to warn analysts of pretty much the exact same situation: that the transition would cause lower profits for the upcoming quarter. The result? New iMacs in August, and the iPod Touch in September.

There are two obvious scenarios that would cause a CFO to warn shareholders that his profit margins might be a little light heading into the upcoming quarter: lower prices, or more expensive production costs.

We already have a pretty strong suspicion that Apple is planning to introduce new notebooks during the quarter. It's been quite some time since the design of the MacBook has received an update, and with Apple's other notebooks sporting an aluminum enclosure these days, it's not hard to envision a similar design in the works for the MacBook based on Intel's new Centrino 2 technology.

But how would that change the margins on the MacBook? The MacBook seems to be the most popular segment of Apple's notebook lineup (the company doesn't break out the details), and perhaps switching to the aluminum enclosure for such a high-volume product would increase Apple's production costs for the MacBook.

Could Apple be considering overall pricing changes in the Mac lineup? One financial analyst seemed to suggest that with a line of questioning that Oppenheimer parried. Apple offers a smaller degree of customized options for Macs on its Web site than other PC vendors do on theirs, and the markup on some of the extra components (like $200 for an extra 2GB of memory) is pretty steep.

New MacBooks are also expected to arrive this quarter, which could affect Apple's product margins.

(Credit: Apple)

The trouble with that theory is that there doesn't seem to be any real reason for Apple to change the pricing of the Mac at this point: the company just sold the highest number of Macs in a quarter in its history. Price doesn't seem to be an object to sales, so why take the margin hit?

Likewise, the iPhone pricing isn't likely to go anywhere in the quarter with the iPhone 3G just making its way out to the public. The subsidized pricing courtesy of AT&T isn't going to change that quickly: Apple COO Tim Cook admitted that the company's internal surveys revealed that a lot of people who liked the iPhone weren't going to pay $399 for it. Apple and AT&T are likely to give the $199/$299 pricing scheme at least the remainder of the year before revisiting things.

The most likely bet for a price cut is the iPod Touch, which sticks out like a sore thumb at $499 for the high-end model compared to the new pricing for the iPhone. Apple wants the iPod Touch to be the future of its iPod lineup, but it's a pretty pricey option compared with the rest of the iPod lineup right now.

Consumers responded very well last quarter to the February price cut for the iPod Shuffle, Oppenheimer said. Obviously, those people buying the Shuffle and those buying the Touch are looking for two very different things in a portable music player. But still, in a economically tepid (at best) year, every dollar matters more than usual.

An iPod Touch price cut makes perfect sense: drop the low-end 8GB model, move the 16GB down to $299, and the 32GB down to $399. And if the company is feeling a little more daring, it could double the capacity of the iPod Touch at those price points.

One scenario that was not addressed by any of the initial questions from the financial community was that involving a brand-new product. There has been lots of speculation over the past year or so that Apple has a minitablet/UMPC/MID type device in the works that would take the Cocoa Touch interface found in the iPhone to a larger screen. But that has always seemed like a more far-fetched notion, given all that Apple has had on its plate this year.

If I had to bet, I'd pick new Centrino 2-based MacBooks and a significant price cut for the iPod Touch as the most likely causes for a gross margin decline next quarter and into next year.

Both of those products could take some time to ramp up to volumes that could make the margins more palatable, although it's important to remember that Apple's margins will still be 30 percent after the decline. That's still pretty healthy for a company in its category.

[Constable Odo]

No matter what Apple does at this point it will keep the company in healthy condition. They got a store open in China and if Apple's products capture their fancy, Apple will continue to boost revenue. Now the stock price is something altogether different. Unfortunately, I don't see that going anywhere up until the Christmas season. That sucks.

[AZ_Big_Mike]

Two words...............

Mac Mini

This little guy needs a serious update and new video card.

Minis rule..............

[Perry_Clease]

Maybe they are going to get away from the Intel chip and go back to something of their own. Not that they wouldn't also have an Intel chip for those who are bi-OS-ul and want to run Windows as well as OSX, or OSXI as the case may be. This would also stop Mac cloners who operate in a gray area of the law from running OSX on non-Apple PCs.

[natsuissa]

yep the mac mini is coming, it should be a good product to boost the sales

brian
http:www.themostpowerfulcompany.com

[CBSTV]

I'll take a guess about the upcoming transition: OS X for non-Macintosh computers.

[Moozle]

Well, there?s one product that I?m still waiting for:

The Mac

Not the iMac or Mac Mini or Mac Pro or MacBook, but a Mac.

An upgradeable tower with:

One CPU slot, not Two;
Two Hard Drives, not Four;
Three PCI slots, not Six;
Four RAM slots, not Eight.

I suspect Apple has many cogent reasons for
not making a mid-size tower like this, but it?s
hard to believe that ?Profits? or ?Market Share?
are among them.

MacMinis are nearly impossible to upgrade, as are
iMacs - not to mention that awful glare on the screen.

Give me an affordable mid-size tower with a separate
screen. I could use about four of them right now.

[kelmon]

I have to agree with Tom on this one - it's going to be something to do with the iPod Touch. I'd expect the iPod line to transition to something iPod Touch-like, although I wonder how this will be achieved while maintaining a diversity in the lineup (iPod Touch Nano?). This seems more likely than any of the other wild predictions. This would also be inline with the usual iPod revamp prior to the start of the US holiday season. I can't see any significant changes being made to the Mac product line beyond a migration to the new Centrino 2 and the 3G iPhone has only just been released.

[aMUSICsite]

Blu-ray?

[gumpman155]

How about comeing out with Open MacOS X simulare to Open SuSE 11 but where its a linux based MacOS X this away people who want to run OS X on thire computers with out buying a Mac can do so leagly . This vertion of Mac OS would be under GPL v 3.0 and Open Source as well. Now for the main OS that has to be used on the Apple Computer they should get away from useing FreeBSD in the kernal and switch over the SCO that away the OS is copyrighted and fixed where it can't run on any thing els but Apple computers. Apple would be able to have it lisenced for Apple only as long as they work with SCO. They would be able to use a product key just like Windows XP dose thats if they run it on an Intel Mac but other wise they would be able to go back to the PPC format. But the Open OS X would be based on eather a FreeBSD or Sun Microsystems OS or some thing of that type. Both OSs would still work the same but Apple would have the rights to one wile the other would be open to every one

[Peter Bonte]

This phrase is important:
"Apple introduces new products that initially cost more because they deliver a new level of value to the customer. Then drive costs down and staying out of reach of our competitors. Apple will follow this plan again in the future."

Macs and ipods can use a small pricecut and/or update but they are not hugely overpriced, the MacBook Air on the other hand is overpriced and has to compete against $300 mini laptops. A low-cost laptop or small tablet / big ipod seems like a nice addition to the current product lineup. Fingers crossed.

[gumpman155]

The Mac OS X thats open to every one would be an amuture vertion of Mac OS. This would open up for other companys to make thire own amuture vertion. The real Mac OS would be a Unix based system witch would be under exclusive rights of Apple inc. and SCO or OPEN GROUP inc. the real Mac OS X would work on Apple hardware only and thats it. How ever they would look at the amuture OS X and see if the public and or other companys have come up with any good ideas and try to incorperat those ideas but in thire own way that would be more professional and not quite as sloppy as the amuture stuff would be. This is some thing that might help Microsoft as well if they would make an amuture vertion of windows thats under GPL 3.0 and Open Source as well. They would be able to keep a pro vertion of windows and run it the same way but look at what the public is doing as well and see what other companys come out with ideas as well. I think this would improved Mac OS X and Windows grately. This would give the public a chance to try thire hand at helping to build up the OSs in a better way as well as help the Open Source community.

[iertry]

I can't see this happening. They would need to make osx run on two architectures and this would mean a lot of wasted time and effort especially since we only moved to intel a few years ago. Also if they included the components for both architectures on the one install the hard drive space needed for osx would be huge because there are still power pc components in the install.

[Perry_Clease]

"I can't see this happening. They would need to make osx run on two architectures and this would mean a lot of wasted time and effort especially since we only moved to intel a few years ago. "

Apple had that Intel ready OSX sitting in a desk drawer. Who knows what they have sitting in the lab ready to surprise pundits and analysts.

[Dirk VanNerden]

Maybe somthing a little more simple...

Such as new display screens, or better batteries.

Maybe new colors for MacBook(upgrade overdue) as well.

Price cuts on Air and Touch would also be good.

[Penguinisto]

My wishlist would include a cheaper laptop and a low-end Mac that wasn't so constricted. But... I'm not them.

[OlsonBW]

Comments One through Ten.

Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.
Apple is a HARDWARE company.

Apple makes software so they can sell THEIR hardware.

No matter how much money you or anyone else things Apple could make selling OS X or any other software. The only reason they write software is to sell Macs, iPods, iPhones, and Apple TVs.

Can you guys FINALLY get this? CAN you? CAN YOU?

If you can't, quit reading about Apple.

----

Next. Apple said "new products". Does this mean new versions of the same products or brand new products?

I don't know what new things Apple might be coming out with. What I would like is:

Updated Mac Mini - easily my biggest wish.
Updated Cinema displays with built in iSight AND lowered prices. $599 for the lowest price Apple monitor is just too high.

[stevicus]

I am still waiting for the return of the 12" notebook, but I fear they've forsaken that footprint. I was hoping the air would have been that size (and was also disappointed at the lack of 1394.

[spurgeon88]

I can't reveal my sources, but I also heard that Apple is going to change the processors again. I do not know if that will affect being able to use "BootCamp" or not. This is not official so please do not take it as that.

Loving my iphone...

[Perry_Clease]

"I can't reveal my sources, but I also heard that Apple is going to change the processors again. I do not know if that will affect being able to use "BootCamp" or not. This is not official so please do not take it as that."

Remember few months ago when Apple bought that chip design company. Now that could mean something for iPhones, iPods or something else, but it could be for something proprietary in a Mac that is required for OSX to boot.

[Cube Over]

@OlsonBW: "Transition" might as well mean "transition from hardware company to software company".
Can YOU get it? CAN YOU?
Notice all the hardware companies having troubles thanks to shrinking margins and standartization/globalization. Indeed, this could be a PC OS X release as well as iWork version that can replace MS OFFICE (the cash cow of M$), with ODF/OXF format support.
Now that they are already in homes, they can go to offices.
This could be the transition, and it will require undermining M$, a SOFTWARE company.
Bill Gates is out, maybe there's a gentleman's agreement...