Apple is the most innovative tech company on the face of the planet. Let’s get that out of the way right up front. The way they’ve shellshocked the world with their new line of MacBook computers is the perfect example of solving problems via technological breakthroughs.
And I specifically didn’t say that they just shellshocked “the computer industry” with their new MacBooks. That’s because the ripple effects of this new computing power will be felt in multiple industries. It goes beyond just the computer industry. The impact of computers, unlike cars or digital content, goes far beyond its own industry.
But what is even more interesting to me is how everyone is interpreting this work from Apple on behalf of the Mac. If you read the major tech sites, this was “a love letter to Mac enthusiasts.” That is definitely a viewpoint from someone who sees events through the rose-colored glasses of being a Mac fan.
I’m not a Mac fan and never have been. In fact, I dumped using a Mac in favor of using an iPad Pro years ago. I prefer the increased mobility (cellular), increased input (Pencil), and until this year, the better screens. So, when I look at Apple’s work on behalf of the Mac, I see a very different story.
To me, this was a dying product line, and Apple had no choice but to make some major changes or see the entire product line implode. This wasn’t “a love letter to Mac users” but a rescue mission to a product line about to drown. It was either make some drastic moves or watch it stagnate into oblivion.
Unlike the Mac fans, Apple could see where the Mac was headed. They know that the Mac market is a leaky bucket where they lose Mac users to the iPad but replace them with iPhone users who switch from Windows PCs. This is all well and good as long as the iPhone is growing, but that growth isn’t going to continue forever. And in the last 24 months, there has been the Covid–lock-down surge in sales followed by the introduction of Apple silicon. A few years of fortunate circumstances have hidden some economic inevitabilities.
The problem for the Mac, which hasn’t changed at all, is that less and less people need them. A decade or more ago, the conversation was all about home users buying Macs to do their home finances, organize their home photo library, or make baby videos. But a problematic shift in the conversations around Macs moved from a general audience to revolve around creative professionals.
This is problematic because the shift to creative professionals means two things: higher-cost components and lower volume. In any scenario, this is the kiss of death. Apple saw this long ago and was probably working feverishly behind the scenes to bring Apple silicon to market, a move to relieve cost pressures but ineffective to alleviate the long-term problem of lower volume.
The engineering genius that went into Apple silicon doesn’t just yield greater performance per watt, it also significantly reduces Apple’s material component and assembly costs. This major paradigm shift was something I didn’t foresee when I postulated that Apple might actually kill off the 13-inch MacBook Pro. But, reducing the material cost of the MacBook only allows Apple to kick the can down the road a few more years until gross margins become a problem.
The big question now is volume. The pandemic boost is mostly over, but the M1 boost is still in full swing. In fact, the MacBook is in the middle of biggest increase ever. Most Mac fans would think it’s lunacy to question future volume. But for someone like me who has done 5-year financial modelling for a living, it’s what we do.
Whenever a mature product line experiences a sudden volume upswing, it is often different from a new product line. It could be what you call “pent up demand” or “pull ahead volume.” Both of these situations lead to a lull after the upswing is over. But this isn’t what concerns me the most regarding Mac volume.
If you listen to all the glowing reviews of the new M1 Pro and Max MacBooks, you’ll start to notice that almost everyone says something along the lines of “the M1 MacBooks are for most people, but these new MacBook Pros are for those who need more.” What was true a decade ago is even more extreme now.
What’s my point? It’s that a small number of users require processing power beyond what the already formidable M1 chip can provide. The new MacBook Pros are moving even further upmarket in an effort to remain relevant. That means lower volume and higher costs and eventually, higher prices. Higher prices lead to even lower volume and thus the vicious cycle has begun.
Now this won’t be an immediate problem since the MacBook just experienced a huge drop in material costs due to the in-house Apple silicon. But if the number of people who opt for a MacBook Pro falls below a certain level, even the Apple silicon cost reduction won’t be enough to stop the company from having to raise prices. And if Apple raises prices, the cycle is magnified because even less users will buy it.
Some will say that it’s no big deal if the mix shifts to the lower-level Macs because Apple is making healthy margins on those too. But the future problem on that front lies in the form of the future iPad Pro. The iPad Pro makes ground every year, gaining more and more of the MacBook functions. In recent years, it has gained multi-tasking, split windows, trackpad support, and USB-C in. Even though people complain that the year-by-year progress is slow, it is quite striking when you look at the past five years. It is very obvious that Apple has no qualms about stealing MacBook market share.
And now with the most recent 2021 iPad Pro, for the first time Apple is openly touting that the iPad Pro even uses the same processor as the base MacBook Pro. Throw in the fact that the iPad Pro has a much better screen than the M1 MacBook Air for less money, and a consumer really has to wonder why they need to spend more money for inferior hardware on multiple levels. The iPad Pro has louder speakers, better cameras, better refresh rates, brighter screens, Center Stage Facetime and on and on. Comparing the iPad Pro to the MacBook Air is like comparing a BMW 2-Series to a 7-Series.
When you look at the rate at which the iPad is gaining more and more MacBook functionality every year, it doesn’t take a big leap of faith to model that within another five years, it is going to be stealing a big chunk of the base MacBook market share. And the iPad Pro seems poised on the very edge of making some huge software gains that are the final missing pieces. Again, less Mac units sold equals higher costs, which leads to higher prices and a magnified unit loss. The vicious cycle still lies ahead for the Mac.
In short, despite the amazing new processing power and cost improvements which Apple silicon brings to the table, I don’t see a brighter future for the Mac from my pessimistic view of years past. In fact, since the iPad Pro now shares the same Apple silicon, it may have exacerbated the problem.
But what is even more interesting to me is how everyone is interpreting this work from Apple on behalf of the Mac. If you read the major tech sites, this was “a love letter to Mac enthusiasts.” That is definitely a viewpoint from someone who sees events through the rose-colored glasses of being a Mac fan.
I’m not a Mac fan and never have been. In fact, I dumped using a Mac in favor of using an iPad Pro years ago. I prefer the increased mobility (cellular), increased input (Pencil), and until this year, the better screens. So, when I look at Apple’s work on behalf of the Mac, I see a very different story.
To me, this was a dying product line, and Apple had no choice but to make some major changes or see the entire product line implode. This wasn’t “a love letter to Mac users” but a rescue mission to a product line about to drown. It was either make some drastic moves or watch it stagnate into oblivion.
Unlike the Mac fans, Apple could see where the Mac was headed. They know that the Mac market is a leaky bucket where they lose Mac users to the iPad but replace them with iPhone users who switch from Windows PCs. This is all well and good as long as the iPhone is growing, but that growth isn’t going to continue forever. And in the last 24 months, there has been the Covid–lock-down surge in sales followed by the introduction of Apple silicon. A few years of fortunate circumstances have hidden some economic inevitabilities.
The problem for the Mac, which hasn’t changed at all, is that less and less people need them. A decade or more ago, the conversation was all about home users buying Macs to do their home finances, organize their home photo library, or make baby videos. But a problematic shift in the conversations around Macs moved from a general audience to revolve around creative professionals.
This is problematic because the shift to creative professionals means two things: higher-cost components and lower volume. In any scenario, this is the kiss of death. Apple saw this long ago and was probably working feverishly behind the scenes to bring Apple silicon to market, a move to relieve cost pressures but ineffective to alleviate the long-term problem of lower volume.
The engineering genius that went into Apple silicon doesn’t just yield greater performance per watt, it also significantly reduces Apple’s material component and assembly costs. This major paradigm shift was something I didn’t foresee when I postulated that Apple might actually kill off the 13-inch MacBook Pro. But, reducing the material cost of the MacBook only allows Apple to kick the can down the road a few more years until gross margins become a problem.
The big question now is volume. The pandemic boost is mostly over, but the M1 boost is still in full swing. In fact, the MacBook is in the middle of biggest increase ever. Most Mac fans would think it’s lunacy to question future volume. But for someone like me who has done 5-year financial modelling for a living, it’s what we do.
Whenever a mature product line experiences a sudden volume upswing, it is often different from a new product line. It could be what you call “pent up demand” or “pull ahead volume.” Both of these situations lead to a lull after the upswing is over. But this isn’t what concerns me the most regarding Mac volume.
If you listen to all the glowing reviews of the new M1 Pro and Max MacBooks, you’ll start to notice that almost everyone says something along the lines of “the M1 MacBooks are for most people, but these new MacBook Pros are for those who need more.” What was true a decade ago is even more extreme now.
What’s my point? It’s that a small number of users require processing power beyond what the already formidable M1 chip can provide. The new MacBook Pros are moving even further upmarket in an effort to remain relevant. That means lower volume and higher costs and eventually, higher prices. Higher prices lead to even lower volume and thus the vicious cycle has begun.
Now this won’t be an immediate problem since the MacBook just experienced a huge drop in material costs due to the in-house Apple silicon. But if the number of people who opt for a MacBook Pro falls below a certain level, even the Apple silicon cost reduction won’t be enough to stop the company from having to raise prices. And if Apple raises prices, the cycle is magnified because even less users will buy it.
Some will say that it’s no big deal if the mix shifts to the lower-level Macs because Apple is making healthy margins on those too. But the future problem on that front lies in the form of the future iPad Pro. The iPad Pro makes ground every year, gaining more and more of the MacBook functions. In recent years, it has gained multi-tasking, split windows, trackpad support, and USB-C in. Even though people complain that the year-by-year progress is slow, it is quite striking when you look at the past five years. It is very obvious that Apple has no qualms about stealing MacBook market share.
And now with the most recent 2021 iPad Pro, for the first time Apple is openly touting that the iPad Pro even uses the same processor as the base MacBook Pro. Throw in the fact that the iPad Pro has a much better screen than the M1 MacBook Air for less money, and a consumer really has to wonder why they need to spend more money for inferior hardware on multiple levels. The iPad Pro has louder speakers, better cameras, better refresh rates, brighter screens, Center Stage Facetime and on and on. Comparing the iPad Pro to the MacBook Air is like comparing a BMW 2-Series to a 7-Series.
When you look at the rate at which the iPad is gaining more and more MacBook functionality every year, it doesn’t take a big leap of faith to model that within another five years, it is going to be stealing a big chunk of the base MacBook market share. And the iPad Pro seems poised on the very edge of making some huge software gains that are the final missing pieces. Again, less Mac units sold equals higher costs, which leads to higher prices and a magnified unit loss. The vicious cycle still lies ahead for the Mac.
In short, despite the amazing new processing power and cost improvements which Apple silicon brings to the table, I don’t see a brighter future for the Mac from my pessimistic view of years past. In fact, since the iPad Pro now shares the same Apple silicon, it may have exacerbated the problem.
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