Apple Knocks Netbooks, Praises Own Pricing


Apple COO Tim Cook used Apple’s earnings call to talk down mini-notebooks – known popularly as “netbooks” – that have buoyed earnings for the rest of the PC market

Despite rumors of a mini-notebook in development, Apple Chief Operating Officer Tim Cook took some time during the company’s July earnings call to disparage the devices – although he also refused to comment on whether Apple was developing a tablet computer that would serve a similar function.

At issue was the computing power built into mini-notebooks, also known as “netbooks” because their primary function is to cruise the Web and perform light tasks.

“I think most customers buying a portable want to buy a full-featured notebook,” Cook said. “[However], some of the netbooks being delivered are very slow, they have software technology that is sold, they don’t have a robust computing experience… that kind of thing a lot of people will not be happy with.”

Even as overall PC shipments have fallen due to the global recession, the market for low-cost netbooks has remained surprisingly robust. A May 2009 report by the NPD Group found that a significant percentage of notebook sales in U.S. major cities, including San Francisco, Los Angeles and Boston, came from netbooks.

However, Cook sees production costs and margins as an issue for Apple entering that market.

“We recognise there are large markets left uncovered,” Cook said. “At this point we don’t see a way to build a great product for $399 (£242) [or] $499. As I’ve said before, I think some customers – maybe many customers – become disappointed and disenchanted after buying [netbooks].”

“Being able to buy a Macbook Pro for less than $800 is just jaw-dropping,” Cook added. “So we feel very good about our pricing.”

For the past few months, however, rumors have swirled that Apple is developing a tablet-like device with a touchscreen, larger than an iPhone or iPod Touch, which would be similar in form-factor to Amazon’s Kindle DX.

In May, analysts from research firm Piper Jaffrey suggested that Apple would produce a 7- to 10-inch tablet in the first half of 2010, priced between $500 and $700, that would fill a product gap for the company between its iPod Touch and the low-end Macs.

“With a larger tablet device in Apple’s lineup, the company could begin selling digital books on its iTunes store, for use on the tablet as an eBook reader,” commented the analysts’ report. “In this way, Apple could respond to the tangential competition from Amazon’s Kindle and Kindle DX.” Users would also be able to surf the Web and perhaps utilize Apps from Apple’s popular App Store.

Apple has played down those tablet rumors in previous earnings calls, and the most recent one was no different, with Cook saying, “I never want to discount anything in the future and never want to specifically answer a question on new products.”

Even without a new computing product, Apple seems sound in its financial position. During its earnings call, the company announced that its quarterly profit had risen 12 percent year-over-year to $1.23 billion, or $1.35 a share. Wall Street analysts had been predicting profits in the neighborhood of $1.17 a share and sales of $8.21 billion.

Despite an economic recession driving down sales of PCs and other devices, Apple reported a robust quarter with regard to unit shipments, with some 5.2 million iPhones and 2.6 million Macs sold during the quarter. However, iPods were a soft spot in the lineup, with sales of the popular music-players declining 7 percent from a year ago, with 10.2 million units sold.

Apple Chief Financial Officer Peter Oppenheimer claimed during the earnings call that the decline in traditional iPod sales was due to “cannibalisation” as Apple pushed the iPod Touch and iPhone into the space.

Apple predicted that next quarter will see revenues between $8.7 billion and $8.9 billion. Its current strong quarter despite analysts’ early concerns that the absence of CEO Steve Jobs, who was on medical leave from day-to-day duties until June 29, would negatively affect the company. Jobs had a liver transplant at a Memphis, Tenn., hospital at some point during the spring, as part of treatment for a disclosed medical condition.