Does Apple Need To Cut iMac Prices?


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In the wake of Apple's Q3 earnings warning, we now know that anecdotes around the Mac web were right, and analysts were wrong: there is a substantial backlog of iMac G4s in inventory.

You don't have to cast your mind too far back (final quarter of 2000 to be precise) to remember when that last happened. In fact, I'll bet quite a few of you are still driving those brand new $1,999 Pismos you picked up in the bargain bins during Xmas 2000.

Contrary to the recent predictions of a number of analysts - that April/May are slow months and that a pile up of inventory is not unusual - it is clear that the initial spurt of demand prompted by the LCD iMac's MWSF release did not necessarily represent what demand would be like once initial orders were satisfied.

This is less of a criticism of the iMac or its feature set, than its price. Uncharacteristically, Apple CFO perhaps gave away too much yesterday by stating that gross profit margins, despite revenue shortfalls, would be as high or higher than the previous quarter, due chiefly to lower component costs.

Wait a moment - didn't Jobs say at MacWorld Tokyo that price rises were due to "component costs"? Weren't other PC manufacturers experiencing similar cost increases?

sic et non, as a famous theologian once said.

Yes, some components did rise in price as demand exceeded supply during the early weeks of 2002. No, this was not sustained as production caught up.

What's more, as we've discovered, there is virtually no margin for OEMs in 15" LCDs. Nil. Nix. Nothing. The plant's got to be doing something (i.e., using what would otherwise be surplus capacity), so it may as well churn out 15" LCDs, while the rest of the joint churns out old-tech, low-cost, higher margin 12" and 14" LCDs for notebooks, and 17" and larger (new tech) LCDs which actually do make money.

The bottom line is that iMac margins make Apple's, er, bottom line, look better than it otherwise might. That means there's room for Apple to lower the entry price to iMac (currently at $1,400; $1,600; and $1,900). Again, we're not criticizing the feature set here, or the relative value. But how many more buyers might opt for iMac over eMac if the LCD model were priced a tempting $200 or so more than an eMac?

Or at least dump the intermediate iMac and put the Combo drive into the base model. It can't cost virtually anything. Or make it a $100 BTO. Not $200.

Otherwise, your prospective Mac repurchaser (or PC switcher, your call), may just sigh, turn around, and buy an eMac.

And Steve you made, what? 99 bucks on that transaction?

Get the prices down: otherwise, you'll have to flog that iMac inventory for a lot less than it cost you to make.