July 29, 2008

Apple May Be Revamping Its Laptop Line

Enough already about the health of Apple (AAPL) CEO Steve Jobs. It's time to turn our attention to something more interesting -- namely, that "future product transition" Apple Chief Financial Officer Peter Oppenheimer mentioned several times on the company's recent earnings conference call.

The smart money is on a revamp of Apple's notebook line. I know I'm not the first to opine on the matter, but here's why I'm expecting new iterations of the MacBook Pro to be a big part of the lineup that Apple expects to help narrow gross margins to 30% in fiscal 2009, from 35% in the third quarter, which wrapped up in June.

The first clue is the drop in margins itself. There are really two ways to reduce margins: Cut prices or increase the cost of the product by adding or improving features.

A Back-to-School Bonus?

Apple has the wind at its back when it comes to demand. According to Gartner (IT), Apple's share of the U.S. PC market jumped to 8.5% in the June quarter, from 6.4% a year earlier, helping Apple narrow the admittedly wide gap with Dell (DELL) and Hewlett-Packard (HPQ). Apple could grab even more share by trimming prices on Macs, which tend to cost more up front than other machines.

But the more likely option is that Apple will cram more features into existing Macs or iPods. Apple typically likes to keep its products within a defined set of price ranges, so adding costly features would eat into margins, at least until component costs decline over time.

The second clue is timing. Apple's fiscal fourth quarter, which ends in September, coincides with the back-to-school season. In each of the past two years, Apple sold almost one-third of total Macs for the year during the fourth quarter, certainly more than in any other period.

Time to Redesign

But why the notebook line? MacBooks accounted for about 60% of the computers Apple sold in fiscal 2007, and while they've sold like crazy, they haven't seen a serious redesign in several years. The MacBook and MacBook Pro were updated on Feb. 26, so they're both about due for the type of refresh Apple usually delivers on its notebooks every six months or so.

The top-of-the-line MacBook Pro is particularly due for revision. Aside from some refining over the years, the MacBook Pro is essentially the same notebook that the PowerBook Titanium was when it first launched in 2001. The main elements -- a 15-inch-wide screen and the silver-toned metallic outer casing -- have evolved only slightly over the course of seven years. Oppenheimer said during the call that the new products will "deliver an entirely new level of value to the customer." How better to do that than with a serious redesign of the notebook line?

The most likely place to look for change is in the display screen. Expect a multitouch display similar to that found on the iPhone and the iPod touch. Apple has a solid set of patents on the new technology and has boned up on multitouch tech through the iPod line.

A Bigger Multitouch Screen?

As much as the MacBook Pro could use an upgrade, Apple will probably weave the technology into a smaller-sized notebook first, says iSuppli analyst Jennifer Callgrove. Making the screen on the MacBook Pro multitouch-enabled would add between 50% and 80% to the cost of the current display, says her colleague Sweta Das. So I'm thinking a small MacBook with a multitouch screen that measures about 9 or 10 in. will be among the "several wonderful new products" Jobs referred to in the earnings press release issued July 21. It's a relatively easy leap from a cost perspective to get to 9 in. from the 3.5-in. display that's in the current iPhone and iPod touch, Callgrove says. Anything larger, given the current costs, would be too costly.

Surely Apple will find willing buyers for a multitouch-capable mini-Mac with a full keyboard. The success of the MacBook Air suggests there's a new willingness at Apple's Cupertino [Calif.] headquarters to fundamentally rethink what a Mac notebook can be. Taiwan's Asustek has shown some spark with its diminutive eePC [BusinessWeek.com, 3/6/08].

Imagine the possibilities. Zoom in on pictures or documents easily, using a motion similar to that of the "pinch" that makes the iPhone so great. You could "zoom" in and out of the desktop, letting you arrange tasks as easily as you would pieces of paper on your real desk, and just as easily zoom in and out of applications.

A Breakthrough Bargain?

If you like Spaces, the feature on the Mac that lets you dedicate virtual screens to each application and then switch between them at a keystroke, you might like it better if you could use your fingers to swipe between one space and another in the same way you can now swipe between home screens on the iPhone. That smaller mini-Mac screen might not seem so little after all.

An argument against a touchscreen mini-Mac is that it might cannibalize sales of the MacBook Air. But Apple could minimize such risks by keeping the price lower -- say, by offering limited storage capacity, such as 32 gigabytes on a solid-state flash memory drive. That's the same as what's available on the higher-end $499 version of the iPod touch. Using flash would give the machine the ability to travel well; all the data stored on the drive would survive a drop, for instance. Plus it could be as thin as the Air, if not thinner, while still having room for a USB port or two.

Most important, this new, smaller machine could sell for less than $800 -- new price territory for Apple. [The current starting price for a MacBook is $1,099.] It would certainly be a popular product, with both an excellent set of features and an aggressive price. Multitouch screens could then easily migrate up the ladder into mainstream Apple notebooks, then into the iMac, and perhaps even its line of Cinema Displays desktop monitors. Perhaps in time we'll be so accustomed to using touchscreens that we no longer need a mouse.


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