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Will Apple's Low-Cost iMac Backfire?

Will Apple's Low-Cost iMac Backfire?
By Jennifer LeClaire

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Just why is Apple lowering prices? CEO Tim Cook is an operations guy, so he knows the impact price has on volume. That contrasts with former CEO Steve Jobs, a brand and marketing guru, who knew how to maximize margin. But lowering prices because of declining PC sales may cause Apple to pay a high price in profits and valuations.
 


Apple is known for its iconic designs -- and its high price tags. But the Mac-maker just rolled out a new 21.5-inch model with a price tag that could turn heads of PC diehards.

Apple is offering an iMac for $1,099 in an apparent move to draw consumers looking for a more affordable option in its Mac line up. Even with the lower pricing on an entry-level, all-in-one desktop the company is not skimping on the quality that helped make the Mac an icon.

The New 21.5-inch iMac has an ultra-thin display, a 1.4 GHz dual-core Intel Core i5 processor with speeds up to 2.7 GHz and an Intel HD 5000 graphics. The machine also comes equipped with 8GB of memory and a 500GB hard drive. All iMac models include 802.11ac Wi-Fi, and two Thunderbolt ports and four USB 3.0 ports that makes expandability and support for high-performance peripherals possible.

Response to PC Decline?

Although this is a significant move on the pricing front, it’s not Apple’s first in recent months. In April, the company updated its MacBook Air with faster processors and lower prices. You can now get a MacBook Air for $899.

That machine comes with fourth generation Intel Core i5 and Core i7 processors that provide the 13-inch laptop with up to 12 hours of battery life and the 11-inch model up to 9 hours of battery life. iLife and iWork come free with all new Macs, whether all-in-ones or laptops.

Could this be a new, more affordable Apple in a post-Steve Jobs era? Now that the company’s founder has passed on, is Apple turning over a new pricing leaf to sway PC users to its corner in the face of the industry’s declining sales?

Quarter after quarter, the forecast seems to grow worse. Now, market research firm IDC is predicting shipments will decline another six percent in 2014 and continue sliding through 2018. Worldwide PC shipments dipped 9.8 percent in 2013. Although that was slightly better than the expected 10.1 percent decline, it is nevertheless still the worst contraction on record, IDC’s Worldwide Quarterly PC Tracker reports.

Will Apple Pay the Price?

We caught up with Rob Enderle, principal analyst at the Enderle Group, to get his thoughts on Apple’s motives for its recent lower-price moves. He told us Apple CEO Tim Cook is an “operations guy,” so he knows the impact price has on volume. That contrasts against former CEO Jobs, a brand and marketing guru, who knew how to maximize margin, Enderle said.

“We are seeing a change in strategy from high margin to high volume, which will likely adversely impact valuation once investors figure out what Cook is doing,” he said. But why is Cook doing this?

“He doesn’t know how to manage a high-margin company and he is shifting Apple to a model that he better understands,” Enderle said. “Yes, this is his response to declining PC sales but he’ll pay a high price in profits and valuations as a result of using this particular tactic.”
 

Tell Us What You Think
Comment:

Name:

Elias:

Posted: 2014-06-19 @ 10:51am PT
1.099 is not exactly "head-turning", is it?

Mike:

Posted: 2014-06-18 @ 9:28pm PT
We are in a depression. This is just Apple dealing with reality.

AskAnExpert:

Posted: 2014-06-18 @ 12:18pm PT
Enderle go home! Cook knows better than you how to manage a high-margin company. He is not shifting Apple to a different model, he is adapting each product line to the margins it can sustain. Premium is in the display nowadays, no longer in the processing unit. So displays that are more in tune with what users want fetch a high margin. All-purpose computers, no matter how stylish and cool, do not, because they face competition by better / bigger displays (TVs) that can access as much computing power as needed from the cloud using cheap ARM-based set top boxes (or similar functionality integrated into the smartTV).



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