Macenstein

Faithful Macenstein reader Kevin O’Neil pointed our heads towards a rather controversial article making the rounds these days. Philip Elmer-DeWitt, writing for Fortune by way of CNNMoney and citing Toni Sacconaghi Jr. of Bernstein Research (this has sort of a “My best friend’s sister’s boyfriend’s brother’s girlfriend heard from this guy who knows this kid who’s going with the girl who saw Ferris pass out at 31 Flavors last night” vibe to it, doesn’t it?) gives his take (or is it Toni’s?) on Apple’s past, present and future laptop market share.

After reading the article, it comes off to me as a prime example of the “People can come up with statistics to prove anything. Forty percent of people know that!” line Homer Simpson uses on Kent Brockman (but then, almost any scenario in my life reminds me of a quote from the Simpsons). The gist of the article seems to be that Apple’s stellar laptop market growth in the high end of various “Quintiles” (a fancy term for price sectors, it seems) is a sign of its ultimate doom. Philip/Toni is of the opinion that because Apple has jumped from a 3% to a 30% share of the 5th Quintiles of laptop sales (that’d be the most expensive one, folks) in the last 7 years, there is no way they can continue to sustain that level of growth, and therefore Apple should disband and sell itself for parts, and Apple’s shareholders should kill themselves.

Looking at the data, which has very little actual information in it, I disagree. First of all, to the best of my knowledge, Apple doesn’t release the specific data on MacBook sales vs. MacBook Pro sales, and there’s about a $2000 difference between them. Why is Toni/Philip assuming almost all of Apple’s laptop sales are in the 5th Quintile (over $1500)? They claim Apple has 46% of the “expensive education laptop sales”, but with education discounts of typically $100, students can get a laptop for as low as $999 (which would fall in the 2nd Quintile).

If Toni/Philip is right, I actually see Apple dominance of the 5th Quintile as proof they have what it takes to expand their dominance in all Quintiles and continue to be the thriving company we all know and love. Remember the recent iPhone price drop? (Maybe you missed it, it was barely covered in the press). By all accounts, the price cut has successfully put the iPhone in reach of spoiled teenagers everywhere, and the spur in the volume of sales for this “perceived” high-end product is expected to more than make up for any loss of individual margins on the device.

I think we’d see a similar effect with Apple laptops. While Dell may sell a $400 laptop and Apple likely never will, because Dell sells a $400 laptop, laptop component prices are falling. Apple could easily knock $100 off their MacBooks and $200 off their MacBook Pros and still maintain their border-line criminal margins, while at the same time creating a rush to buy the now affordable “high end” laptop the kids have been bugging their parents for. Apple has created a certain “platinum club” mystique around their laptops by only selling 2 models, with neither priced under $1099. If the MacBook should hit that $999 sweet spot ($899 with student discounts), you’d see a boon in all 5 Quintiles for Apple.

But Apple won’t need to do that until its insane laptop growth plateaus, and it doesn’t appear that will happen anytime soon. For whatever reason, Toni/Philip thinks that Apple’s huge laptop market share gains in 10 of the last 11 quarters (the latest one being particularly strong) is a sign that Apple’s high-end laptop share will stall. While we agree mathematically that it can’t go higher than 100% (and realistically, unless HP and DELL go out of business it probably can’t ever go higher than 40-50%) the fact is by slightly lowering prices, they can continue to grow shares of all Quintiles for a very long time.