Apple can make money on $599 netbook, says analyst

With a US$599 netbook, Apple could move into a fast-growing market without cannibalizing existing sales.

With a US$599 netbook, Apple could move into a fast-growing market without cannibalizing existing sales and still make the profit margin investors have come to expect, a financial analyst argued Monday.

"Despite management's commentary that it's not interested in the netbook market, the key to Apple's model is continued [share] penetration," said Brian Marshall, an analyst with Broadpoint AmTech. "Currently, Apple has about 3.5 percent of the computer market. But I see that tapering off this year, for two reasons," he said. "One, it will be difficult to stay at that share in this downturn with a high-priced product. And two, the company has indicated it has no interest in playing in the fastest-growing segment."

Although Apple may resist moving into the netbook market — loosely defined as small, lightweight and lower-priced notebooks — Marshall spelled out how the company could actually craft a premium-priced netbook that wouldn't eat into sales of the more expensive MacBook line.

"Investors, and Apple, too, are concerned about the possibility of a netbook being cannibalistic, but I think that [a netbook] at $599 is not a cannibalistic product if it's positioned properly," said Marshall.

He envisions a device boasting a 10.1-in. screen and a 16GB solid-state drive, perhaps powered by an ARM processor designed by P.A. Semi, the California chip designer Apple acquired last year for a reported $278 million.

Marshall pointed to Hewlett-Packard's Mini 1000 netbook as a starting point for comparisons to what Apple might build. When configured with a 10.1in display and 16GB of hard drive space, the Mini 1000 XP costs about $399.

"If you assume a 50% premium for Apple's netbook, it would be priced around $599," said Marshall, noting, as have other analysts, that the number was above what CEO Steve Jobs said last year was a too-low price point. "We don't know how to make a $500 computer that's not a piece of junk," Jobs said last year during a conference call with Wall Street analysts.

"At that price, it's a material difference from there to the $999 of the least-expensive MacBook," Marshall said.

Apple's lowest-priced notebook is the $999 MacBook hold-over from the previous generation; the new "unibody" MacBooks introduced last October start at $1,299.

Using his own cost-of-goods workup, Marshall showed how Apple could sell a netbook at $599 and still make a profit of between 35 percent and 40 percent on each unit, a range that matches the 35 percent margin Apple had in the quarter that ended December 2008.

"But I don't think Apple will want to be in the space just to make another netbook," said Marshall. Instead, he expects that the company would offer technologies and software that others don't. "I definitely see a place for some of their technology, in the form of a multi-touch screen, and their iLife productivity suite, in any netbook," he said. "That's obviously crucial."

While Apple could conceivable delay indefinitely any netbook decisionhe pegged the second quarter as an optimum time to jump in. "Their ability to move [on a market] is second to none," said Marshall, "Just look at the what they've done in smartphones.

"It makes a lot of sense for the K-12 school market, and later, for back-to-school," said Marshall.

Marshall is not the first analyst to place his bet on an Apple netbook. Last December, Ezra Gottheil of Technology Business Research speculated that Apple would roll out multiple models at the Macworld Conference and Expo the next month.

Apple's only laptop announcement at the trade show was a revamped 17in MacBook Pro, which only recently began shipping.

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Gregg Keizer

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