January 11, 2001 11:00 AM PST

Titanium PowerBook: A test of Apple's mettle

Is Titanium tough enough to reverse Apple Computer's sagging fortunes?

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Apple's Titanium PowerBook: A closer look
Greg Joswiak, Apple Portable Products senior director
The Titanium PowerBook G4 notebook--the long-anticipated successor to the PowerBook G3--more than any of the products introduced at this week's Macworld Expo epitomizes what Apple needs to build its market share. But some analysts believe the Titanium is so loaded with features that Apple is sacrificing huge profit margins in order to gain a bigger chunk of the portable market.

"Apple's biggest problem is they lost a lot of market share in the corporate space, and they're clearly trying to build that back," Mobile Insights analyst Tim Scannell said.

Apple is by no means a leader in the notebook market, but the Cupertino, Calif.-based company has been picking up speed.

During the third quarter of 2000, Apple had 2.9 percent share of the worldwide notebook market, up from 2.1 percent year-over-year, according to Dataquest. In the United States, Apple's notebook market share rose to 4.98percent in the third quarter, up from 3.6 percent a year earlier.

For comparison, Toshiba led the worldwide market with 13.6 percent share in the third quarter. Dell Computer led the U.S. market with 21.4 percent share.

"Apple's real success will rest on its ability to pull notebook users away from their Dells, Toshibas and Sonys and firmly plant them in front of a PowerBook," Technology Business Research analyst Tim Deal said.

While much of Apple's more recent hullabaloo over new products focused on consumer styling and features, the Titanium is clearly geared for the professional market.

Apple CEO "Steve Jobs is thinking about the business market by offering such a light and rugged computer," Scannell said. "At the same time, he's not sacrificing style."

The 1-inch thick portable sports a titanium case, a 15.2-inch display, a slot-loading DVD drive, an integrated modem and networking, USB and FireWire ports, and 802.11 wireless-networking capability. It weighs a scant 5.3 pounds.

Other niceties: Reflecting Apple's typical engineering innovation, Titanium's keyboard is attached with magnets and pulls off easily, allowing simple access to upgrade the memory.

"No one else offers such a large display at such a low weight," ARS analyst Matt Sargent said. "It's an impressive system, and I think it will sell very well."

The new PowerBook also bridges the speed gap between Apple notebooks and desktops, offering a choice of 400MHz or 500MHz G4 processors. Apple moved its professional line of Power Mac systems to the G4 chip more than a year ago, but PowerBook buyers had to contend with slower G3 processors.

Timing is everything
Besides packing powerful features, Titanium also is really "cool looking," Scannell said. But unlike the iMac, the iBook or even the Power Mac, the new PowerBook's styling is likely to attract a wide range of people, including corporate buyers.

Analysts have long faulted Apple for not taking the business market seriously enough. The company has instead focused on established segments, such as education and graphics, and on rekindling consumer interest.

But for Apple to expand or even just survive, the company must win more than just Mac enthusiasts, said Gartner analyst Ken Dulaney. Apple must convince technology managers and corporate chief information officers that its products offer enough value and features to justify the headaches of running mixed PC and Mac systems.

Scannell agreed. "Apple has to make the attack on the enterprise side in order to go forward," he said. "They have to get away from being a consumer-y type company."

The timing also is right because more and more businesses want to provide their most productive employees, as well as managers and salespeople, with notebooks.

This contrasts sharply with the timing of Apple's ill-fated Power Mac G4 Cube, which suffered from slow sales and brought the company praise for style but little else. Apple released the Cube in July--at about the same time its core users completed their "typical 18-month upgrade cycle," Sargent said. "It's not surprising the Cube sold poorly."

Titanium's release, by contrast, is expected to ride pent up demand for a faster, sleeker Mac professional notebook. Apple also benefits from an overall growing portable market.

"Apple's first tenuous steps to introduce a new product after the Cube debacle may prove to be in the right direction," Deal said. "The Titanium notebook certainly represents a more conservative design approach for Apple, but it will appeal more to corporate customers--a market Apple could undoubtedly exploit more."

But Titanium's design is also striking. This is important, Scannell said, because many notebook "purchases are being made as work-style decisions." He noted that IBM--which chose to make the shells of its ThinkPad notebooks with titanium composite--also realized this and stylized its notebook line.

Dulaney sees the new PowerBook appealing to sales and other professionals needing "an image product."

At what cost?
One of the biggest things going for the Titanium is value, analysts say, which is something unusual in a Mac notebook.

"Something they are doing with this system--and it's something they have not done in the past--is being price sensitive with PCs," Sargent said. "If you compare PowerBook to PC notebooks, the price-performance just hasn't been there."

Apple's consumer portable, iBook, comes close, Sargent added.

The entry-level Titanium model sells for around $2,600, making it about the cheapest notebook that packs a 15-inch display.

Dulaney scoffed at the pricing, wondering how Apple could make any money on the Titanium.

"It must be a loss leader," he said. "There's no way Apple can sell titanium casing and that large a display and make money on this."

He also faulted Apple for using titanium casing, calling it a marketing ploy. "Complete titanium is a waste of money," Dulaney said.

Apple's low-cost, low-profit approach is simply "a way to gain market share," Dulaney said. "They're probably afraid of losing their core graphics or advertising talent."

An Apple representative wouldn't respond.

"We are in a quiet period (before earnings) and cannot comment on financials," the representative said. Because of this, "we're not going to comment on margins. We're not going to comment on that assertion, if you will...We think it is just an incredible product and that titanium (casing) brings a lot of value to the product, something our customers are going to love."

Apple announces earnings Jan. 17.

Other analysts questioned the assertion that Apple would sell any titanium model at a loss but conceded that the profit margins are likely very slim for a notebook.

"If Apple can capture three or four points of market share in the business market, it's worth even selling it at a loss," Scannell said.

The faithful speak
The reaction from people attending Macworld in San Francisco showed strong interest in Titanium.

Donna Morris, a media specialist dealing with education in Orlando, Fla., owns a G3 PowerBook and is considering buying the Titanium. "It's awesome," she said. "I would really like to have another one. It's just coming up with the bucks."

Fred Johnson, an anchor with Yahoo's Financevision Webcasting unit in Santa Clara, Calif., said he ordered one immediately after Jobs' keynote speech but is rethinking the decision. One reason is the performance and feature differences compared with the new Power Macs.

"It's a sexy machine all right, but you're still giving up a bit," he said. "It's cool and I may still get it, but it's those little, fundamental things."

Still, Titanium's broadest appeal may come from creative professionals, who could benefit from the portable's wide display, rather than the more squarish shape found on other notebooks.

"The Titanium notebook seems well suited for the independent filmmaker who needs to edit on location," Deal said. By integrating a larger screen along with its trademark FireWire connectivity, Apple is capitalizing on its strong digital-video editing competencies."

News.com's Ian Fried contributed to this report.

 

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