Computerworld — With a US$599 netbook, Apple Inc. 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 10.1-in. display and 16GB of hard drive space, the Mini 1000 XP costs about $399.

"If you assume a 50 percent 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.

Continue Reading