Apple challenges ultrabooks with MacBook Air price cut

Apple did something very unusual Monday: It cut prices.

As part of its long-awaited notebook refresh, Apple dropped the priceof three of the four models in its signature MacBook Air line by $100,representing cuts of between 6% and 8%.

The new laptops, and prices, were announced at Apple’s WorldwideDevelopers conference.

Apple rarely reduces prices on its Macs, and instead prefers to keepthe dollar figure static while boosting performance and storagecapacity with newer processors and graphics chipsets, more RAM andlarger hard drives or SSDs (solid-state drives).

The last time Apple reduced prices of the Air was in October 2010, whenthe company introduced the first sub-$1,000 model, a $999 11-in. laptopwith 2GB of memory and a 64GB SSD.

Before that, it’s hard to track down an Apple price cut other than themid-2009 6% to 28% discounts on all then-available MacBook Airs andMacBook Pros. That move, analystssaid at the time, was the company’sreaction to the crumbling economy and consumer unrest.

“For them to take $100 off, that’s a pretty potent statement,” saidFrank Gillett, an analyst with Forrester Research, in a Mondayinterview. “They’re cutting prices and improving the hardware. Thatmeans that there was enough room in the margin before to return some tocustomers. And it shows that they’ve recouped all the setup and toolingcosts, so they can set prices more marginally.”

That doesn’t bode well for rivals, especially the OEMs (originalequipment manufacturers) looking to cash in on the thin-and-lightcategory with Windows-powered ultrabooks, Intel’s marketinglabel forMacBook Air competitors.

Intel and Microsoft are workingreally hard to convince buyers thatWindows 8 and laptops, as well as convertibles, can compete with theAir,” said Gillett, referring to both features and price. “But theanalyst reaction has been mixed so far. [Ultrabooks] remain to beproven.”

Pre-emptive strike against Windows 8
More importantly, Gillett questioned whether Windows OEMs could createan ultrabook comparable to the Air and undercut Apple’s prices.

Apple has been making the Air for more than four years, noted Gillett,and that has given the company experience in design, manufacturing andcost-cutting that other companies don’t yet have. “They now have thevolume [in sales] and the economy of scale [in manufacturing] thatothers may never be able to hit,” Gillett said.

Those OEMs also work at another disadvantage, as they must payMicrosoft for each Windows license.

Windows ultrabook makers, in other words, are starting in a hole, andunless they can convince buyers to snap up the new notebooks, they mayhave a hard time reaching the manufacturing scale — and thus the lowercosts — that Apple just demonstrated by cutting prices.

Keith Shaw talks with Computerworld News Editor Ken Mingis abouttoday’s Apple announcements at the Worldwide Developer Conference,which included new MacBook Pro hardware, MacBook Air notebooks andupdates to OS X and iOS 6.

“It’s just not clear if it all will pan out for [ultrabook makers],” said Gillett. “You could say that the Air is more expensive, that’s something people have said for a long time. But if you do a feature parity, the price difference drops away.”

Gillett declined to speculate on whether Apple reduced prices as apre-emptive strike against ultrabooks before Windows 8 appears;Microsoft’s next operating system will likely ship this fall.

“It’s hard to know what’s on Apple’s mind,” Gillett said in a majorunderstatement. “There may be something to that, but then, they do tendto follow their own inner compass.”

Ultrabooks too pricey, critics say
Critics have said that the current crop of ultrabooks are too expensiveat their starting prices of around $800 — although that’s recentlydropped to around $750 — that they lack the fit and finish of Apple’sAir, and that the choice of cheaper materials, like plastic rather thanthe milled aluminum “unibody” case that Apple uses, turns off buyerswho see the Air as the benchmark to beat.

Another analyst, Brian White of Topeka Capital Markets, also mentionedthe hard sell ultrabook makers face in an early Monday research note tohis clients.

“Our checks … indicate that [ultrabook] price points will not reachthe $699 level this year that we believe is necessary to lure consumersinto this new notebook category,” wrote White. “However, we expectprices to trend lower in 2013. But with Apple’s MacBook Air priced aslow as $999 and an upgraded version expected at WWDC, this week, webelieve consumers will have a difficult time justifying an ultrabookpurchase.”

And there’s precedent for the position Apple’s in with the MacBook Air.

“It’s the same thing as with the iPad,” Gillett said. “Other tabletmakers can’t match Apple’s prices with a comparable device.”

Brian Marshall of the ISI Group, remained bullish on Macs after Apple’sannouncements.

While Marshall did not address the Air price cuts in a research note toclients on Monday, he said that the Mac “is positioned to continuetaking share.” Marshall has estimated that Apple will sell 13% morelaptops in the quarter that ends June 30 than the same period the yearbefore, but will be flat in the third quarter.

Along with the price cuts to three of the four Air models — thelowest-priced configuration, the entry-level 11-in. MacBook Air,remained at $999 — Apple also boosted the RAM to 4GB across the board;swapped in Intel dual-core processors from its new third-generation“Ivy Bridge” architecture, thefirst to use a 22-nanometermanufacturing process; and equipped all with Intel’s HD Graphics 4000chipset, which Apple claimed was 60% faster than the HD Graphics 3000that it replaced.

The new MacBook Airs went on sale Monday at Apple’s retail and onlinestores, and at some authorized resellers.

Gregg Keizer coversMicrosoft, security issues, Apple, Web browsers and general technologybreaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg’sRSS feed. Hisemail address is gkeizer@computerworld.com.

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