You Could See the Death of the MacBook in March of 2018
When Ming Chi Kuo came out in March of 2018 with the unexpected news that Apple was going to update the MacBook Air, I had a feeling it was all over the 12” MacBook. Here are some excerpts from what I wrote at the time
First, the cornerstone of any profit improvement plan would be steadily increasing unit sales. This would allow for the reduction in fixed overhead costs per unit and reduced material costs via better pricing. But what if the public remains lukewarm to the MacBook? What if Mac users weren’t ready for a small laptop with only one port? I wrote last year that the 12” MacBook was the worst of both worlds when you compare tablets to laptops. I suspect many others agreed with me.
Second, unexpected support issues can break a product line. One of the keys to making the 12” MacBook so slim was redesigning the keyboard. However, this new design seems to be so finicky that even small pieces of dust can render a key inoperable. It also sounds like repairing this flaw is extremely costly to Apple. If the MacBook keyboard has a fatal flaw that is ridiculously expensive to repair, Apple may not want this model to ever reach mass acceptance. That could lead to service costs exploding in the future. And remember, service and support issues don’t show up in gross margin. They are down below in selling expenses.
Apple announced this week that they were going to discontinue the 12” MacBook so it has indeed failed. People can point to the lack of ports and power as a reason for its demise but that is superficial. Apple knew they were going to lose those customers. That was no surprise.
Where Apple’s plan was derailed was the warranty support costs. A laptop with iPad level mobility and ports needs to be priced closer to an iPad. The original MacBook Air didn’t hit critical mass until Apple had harvested early adopter premiums and lowered the price significantly. Apple planned to consistently drive up unit sales by dropping the price. But due to the extremely expensive repair costs on those keyboards, there was no way Apple was ever going to be able to drop prices without losing a ton of money.
Due to sky high warranty support, the MacBook was losing money even at its original lofty prices. That’s a disaster.
As I always bring up from my time at Gateway Computers, it was warranty costs on those plasma tv’s that was the last straw. Gateway priced their televisions at gross margin plus a small profit. They had no idea how large the warranty expense would be in the future until it was too late.
Non-sophisticated investors get too caught up in only looking at gross margins. Those service and support costs can kill you. This is one of the biggest reasons that the car company Tesla is destined to fail. Service and support is like a time bomb with a 2 year fuse.
Second, unexpected support issues can break a product line. One of the keys to making the 12” MacBook so slim was redesigning the keyboard. However, this new design seems to be so finicky that even small pieces of dust can render a key inoperable. It also sounds like repairing this flaw is extremely costly to Apple. If the MacBook keyboard has a fatal flaw that is ridiculously expensive to repair, Apple may not want this model to ever reach mass acceptance. That could lead to service costs exploding in the future. And remember, service and support issues don’t show up in gross margin. They are down below in selling expenses.
Apple announced this week that they were going to discontinue the 12” MacBook so it has indeed failed. People can point to the lack of ports and power as a reason for its demise but that is superficial. Apple knew they were going to lose those customers. That was no surprise.
Where Apple’s plan was derailed was the warranty support costs. A laptop with iPad level mobility and ports needs to be priced closer to an iPad. The original MacBook Air didn’t hit critical mass until Apple had harvested early adopter premiums and lowered the price significantly. Apple planned to consistently drive up unit sales by dropping the price. But due to the extremely expensive repair costs on those keyboards, there was no way Apple was ever going to be able to drop prices without losing a ton of money.
Due to sky high warranty support, the MacBook was losing money even at its original lofty prices. That’s a disaster.
As I always bring up from my time at Gateway Computers, it was warranty costs on those plasma tv’s that was the last straw. Gateway priced their televisions at gross margin plus a small profit. They had no idea how large the warranty expense would be in the future until it was too late.
Non-sophisticated investors get too caught up in only looking at gross margins. Those service and support costs can kill you. This is one of the biggest reasons that the car company Tesla is destined to fail. Service and support is like a time bomb with a 2 year fuse.
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