Apple Inc. executives may be ridiculing netbooks as a computer category not worth their while, but analysts aren't buying it.
The company will unveil something to compete in the lower-priced, less-powerful market now dominated by Windows-based netbooks, analysts said Thursday, no matter what Tim Cook, its chief operating officer, said Wednesday during the company's quarterly earnings call.
"I didn't hear any change from the company line," said Brian Marshall, an analyst with Broadpoint AmTech. "But that's getting a little stale." Apple is known for dismissing a product category until it has something of its own to offer, he added.
"If you track the industry, which Apple certainly does, you have to conclude that netbooks are a success," said Marshall. "I definitely think they'll come out with a netbook or tablet, or netbook-slash-tablet, in the second half of this year."
The company line, as Marshall put it, was reiterated yesterday by Cook, the executive running Apple in the absence of CEO Steve Jobs, who remains on medical leave. When asked to describe Apple's position on the category, Cooks used the strongest-yet language to heap scorn on the small, cheap notebooks.
"When I look at what is being sold in the netbook space today, I see cramped keyboards, terrible software, junky hardware, very small screens, and just not a consumer experience, and not something that we would put the Mac brand on, quite frankly," Cook said. "And so, it's not a space as it exists today that we are interested in, nor do we believe that customers in the long term would be interested in. It's a segment we would choose not to play in."
Cook's comments echoed those in October 2008 by Jobs himself during an earlier earnings call. "We don't know how to make a $500 computer that's not a piece of junk, and our DNA will not let us ship that," he said at the time. But he had also called the market for ultra-small, ultra-cheap laptops "nascent" and downplayed its size. "There's, as best as we can tell, not a lot of them getting sold," he said in October.
That's not the case now, according to research firms such as IDC, which last week credited netbooks with preventing an even steeper decline in PC sales, and said they were a large part of the success of Acer in the U.S., where the company sold about 450,000 more computers than did Apple.
Perhaps that's why Cook hedged his bets somewhat as he continued to talk about netbooks. "That said, we do look at the space and are interested to see our customers' response to it," he said. Then, just as did Jobs last year, Cook suggested that Apple does have a player in the category. Two, in fact.
"People that want a small computer so to speak that does browsing and e-mail, might want to buy an iPod Touch or they might want to buy an iPhone," Cook said. "...We have other products to accomplish some of what people are buying netbooks for and so, in that particular way, we play in an indirect basis." If all else fails, Cook said, Apple may decide, after all, that netbooks are worthy of its attention. "Of course, if we find a way where we can deliver an innovative product that really makes a contribution, then we will do that and we have some interesting ideas in the space." Smoke and mirrors, said Marshall. "They're sticking to their guns in term of the company line, but they'll do something, probably a combination netbook and tablet using a 10-in. screen," he said.
"I definitely think they'll come out with a netbook or tablet, or netbook-slash-tablet, in the second half of this year," Marshall continued. Reports last month claimed that Apple had placed large orders for 9.5-in. to 10-in. touch-screens. "It'll be about the size of the MacBook Air, with a touch-screen that can be swiveled so that when the device is closed, the screen will be on top. And with a 10-in. screen, you can have almost a full-sized keyboard."
Ezra Gottheil, an analyst with Technology Business Research Inc., joined Marshall in dismissing Apple's public comments about netbooks, but sees the future device somewhat differently. "They may not make it with a keyboard," Gottheil said. "There was talk [by Cook] about 'cramped keyboards.' I think it would be a mistake to make the keyboard not essential, but every company has its prejudices, and Apple is not a keyboard-friendly company."
Gottheil, however, believes that Apple's entry into the netbook-priced market -- or as close as Apple will come to the US$300-$500 price point that most consider the netbook maximum -- will be based on a touch-screen. "It'll be slotted [in price] between the iPod Touch and $999 MacBook," he said. "When it comes down to it, from a platform point of view, it's an iPod Touch, but from a form factor point of view, it's got to be a good deal bigger."
Apple would be foolish to ignore the space, Gottheil argued, since the company's average sales price (ASP) has dropped as customers have opted for lower-priced models, such as the $999 MacBook, the $599 Mac mini, and rather than a MacBook Pro, settled for a new "unibody" MacBook.
"Apple ASPs were down 13% year-to-year," Gottheil said. "Customers are increasingly choosing the less expensive models, including the Mac mini, which costs $600 without a monitor, keyboard or mouse."
At risk, said Gottheil, are sales to people who have been using Windows-based PCs. Previously, Apple has touted the percentage of such "switchers" who bought machines at its retail stores, but yesterday, executives didn't mention the statistic. "The shaky economy and the appeal of netbooks is slowing Apple's conversion of Windows users to Apple users," he said.
Both Marshall and Gottheil have previously talked about possible Apple answers to netbooks. In February, Marshall spelled out how Apple could sell $599 system and still make money, while Gottheil pitched the idea last year that Apple would use January 2009's MacWorld conference to unveil smaller, less-expensive laptops. Apple, however, did not.
But maybe Apple should be taken at its word. After all, Cook concluded his comments about netbooks with an especially harsh description. "I think it's a stretch to call [a netbook] a personal computer," he said.