At last weeks WWDC, Apple unveiled a slew of upgrades and price cuts across its MacBook Pro line, with one of the more interesting announcements being the introduction of a new 13-inch MacBok Pro for under $1200. Apple also slashed $300 off the price tags for the MacBook Air and the 17-inch MacBook Pro. And on top of that, battery life on the new MacBook Pro’s are said to be through the roof.
But now, and I suppose it shouldn’t come as much of a surprise, analysts are now worrying that Apple’s new price cuts will adversely affect its margins. Admittedly, lower prices typically result in lower margins, but here’s why analyts are a bunch of BS artists. When the cost of Apple products are high, analysts clamor together and say that Apple needs to make its products more affordable if it wants maintain growth. Then when Apple lowers its prices, those same analysts jump in and say that Apple’s margins will take a significant hit.
Well, which one is it?
In a similar vein, it’s astounding that a number of prominent financial analysts have in the past written that Apple needs to come out with a netbook in order to compete in the sub-$500 notebok market. The problem is that a) The netbook market is still not big enough to warrant Apple’s full attention and b) Apple can’t make any money selling low-end and discounted machines. It’s amazing that these seemingly educated analysts still don’t understand that market share does not equal profitability!
And now it’s time for a hypothetical.
If Apple ends up releasing a tablet, which seems to be the consensus these days, you can bet that analysts will be jumping out of their seats at all the new sales revenue likely to be earned by Apple. Then a few weeks later, you can bet that the analysts will start saying that Apple needs to lower its tablet price to make it more affordable. Then, as I continue on with my hypothetical, once Apple lowers the price, those same analysts will be shouting from the rooftops, “WHAT ABOUT THE PROFIT MARGINS?!”.
Are these analysts stupid, or just looking for ways to stay employed. I lean towards the latter. As George Costanza once showed on Seinfeld, if you complain and constantly act annoyed, people actually think you’re working hard. So it goes with a number of analysts who constantly complain and talk out of both sides of their mouth when it comes to Apple.
Sometimes it seems that a monkey could do their job. On that note, here’s a basic flowchart that many analysts probably keep hanging up on their wall.
Are product prices high? If yes, say they must be lowered!
Are product prices low? If yes, mention profit margins!
Are profits steadily increasing? If yes, say that it will be impossible to maintain profit growth!
Are profits steadily decreasing? If yes, say that company is ruined!