Disclosure: I bought AAPL in 1984 and 1986, and still have about 20% left. I sold some of my holdings late last year for 1602 times the price at which I invested. I have followed the company closely since my first Apple 2 Plus in 1980, and have a long-term perspective that others may not have.
Having thrived for decades delivering superior products at a premium price, Apple’s move into low-cost laptops this spring with its Neo laptop is a game changer.
Neo is positioned with superior specs to its Windows-running and Chromebook competitors, and initially at $499 for a student version it is priced below most of them. Even after the recent memory-induced $100 price increase, it is more than competitive with other low-cost Windows laptops and Chromebooks. Further, Microsoft has taken its eye off its core business and allowed customers who liked Windows 10 be open to alternatives because they are disappointed with Windows 11. Rather than responding to maintain market share, Microsoft recently increased its least expensive Surface laptop to $950.
The lack of a response is not surprising for Microsoft, even though it is short-sighted. Microsoft seems solely focused on AI, and is neglecting the cash clow of its core businesses in many ways. But it is short-sighted because now many students are receiving Neo’s as their entry computer, and once they get hooked on the many advantages (including integration with their iPhones and other Apple devices and services), they will likely be lifetime customers and move up to more powerful and more expensive Macs.
Apple still makes an estimated gross profit margin of 50-60% on the $699 model of these Neo “gateway” computers. This compares to an estimated range of 58-62% margin for its base 16-inch MacBook Pro. This exceeds that of its competitors because:
· There is no software license to Microsoft
· Apple’s integrated chips allow more efficient use of RAM that is critical toady because of the shortage of RAM and the surge in prices
· Apple’s buying power on components
· Apple’s vertical integration into Apple Silicon design and modems takes Intel and Qualcomm out of the equation
So the CAQ (Cost of Acquisition) is only somewhat lower profit margin on Neo relative to other Macs, the LTV (Life-Time Value) is something like $20,000.
Once again, Apple distinguishes itself with brilliant strategy that competitors cannot copy.
