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PC makers take aim at Apple

Source: Reuters - Fri 7th Aug 2009

PC makers which have long coveted a slice of Apple's market will get their chance with new, powerful ultra-thin laptops less costly than Macs. But much depends on their ability to match Apple's chic aura and reputation for reliability.

Analysts say next-generation consumer notebooks, which run off new "CULV" microprocessors that let laptops get smaller and lighter, will quickly become credible cost and performance alternatives to Apple laptops such as the slim MacBook Air.

The latest processors from Intel Corp now use less energy, so they do not need as much space-eating cooling system and can be manufactured thinner but also carry enough power to run most of the multimedia functions users want.

PC makers from ASUStek to Hewlett-Packard Co and Acer Inc are scrambling to design notebooks less than an inch thick with an estimated 60 percent longer battery life and that will cost less than half the Air's $1,500 price tag.

"It's a space (Apple) can't ignore right now. It's growing like crazy and everyone we know is trying to figure the market out and help define the category" IDC analyst Richard Shim said.

Apple lords over the high-end market. In June, on a dollar basis, it held 91 percent of the market for PCs costing over $1,000 in the United States, research outfit NPD estimates.

While Apple's customer base is growing and famously loyal, it's vulnerable on price, analysts say. In a recession, the new breed of slimmer Microsoft Windows PCs may entice.

Consumers have always leaned toward smaller, cheaper machines, and laptop sales unlike desktops are expected to grow in 2009, driven mainly by no-frills, super-cheap netbooks whose market share is set to more than double to 9.5 percent of the total PC market this year, according to IDC. 

The ultra-thins now entering the market are priced between a netbook and a traditional laptop, and Intel is expecting "netbook-like growth" from the category. Analysts say netbooks may have been too low-end to compete with Apple's gear, but the newfangled machines will narrow or even bridge that gap.


Apart from price and performance, PC makers will need to figure out how to tackle Apple's other perceived strengths.

Analysts say Apple customers are equally swayed by software as they are by hardware, and are willing to pay a premium for the easy-to-use and reliable Mac operating system.

Many users complain about the lack of consistency in getting applications to work on Windows, while the Mac OS scores much higher on getting software to work out of the box.

"If you're a Mac user, it's highly unlikely you're going to switch to a 'Wintel' platform just because there are new form factors coming out. That's not the catalyst for the Mac install base" Collins Stewart LLC analyst Ashok Kumar said.

"It's all software."

The new Windows 7 system, launching October, may help the new ultra-thin platform, but that remains to be seen. Yet even if fans aren't enticed to switch camps, it may force Apple to lower prices sooner than it might otherwise, analysts say.

The Air sells for $1500, after a $300 price cut in June. The cheap new ultra-thins are expected to sell between $500 and $800, but hit a sweet spot around $700. 

Consumers have proven willing to pay a premium for Apple, but analysts warn their resolve may waver in a down economy.

"Their brand certainly allows them a bit of latitude with charging a premium, but ... a 15-20 percent premium is acceptable for the majority of a product portfolio" in this market, ITIC analyst Laura DiDio said, adding that people are increasingly loyal to their wallets.

But price changes are quick to implement and it's not a decision Apple will have to make immediately, analysts say.

Apple was not immediately available for comment.


Even as PC makers ready a slew of laptops to attack Apple's stronghold, Apple itself might be devising a strategy to enter the lower-end PC market.

Despite Apple's knack for launching iconic consumer products, its overall market share is tiny. Apple shipped less than 3 percent of PCs worldwide in 2008, and was ranked seventh by market share, according to IDC.

Apple could increase its market share if it dropped prices or launched a new, less-expensive product, analysts say.

"Clearly the portable, mobile computing market is a critical segment for them" RBC Capital Markets' Mike Abramsky said. "So they're going to continue to put products into that market that are aligned with the trends that are going on in the marketplace form factor and pricing etc." 

And while Apple executives have dismissed the netbook phenomenon, saying the devices are cramped and sacrifice quality or profit at current prices, some analysts say Apple is gearing up for a smaller, tablet-like device in the second half, a move which could grow its market share.

Reports vary, but BroadPoint AmTech's Brian Marshall expects a device this quarter, priced at $599.

"There is somewhat of a void if you will, or price gap at that point" he said.

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