Van L. BakerApple posted very strong results for its second fiscal quarter reporting net income of 1.21 Billion or $1.33 per share on revenues of $8.16 billion. Sales fo the iPhone were up a spectacular 123% over the year ago quarter wnd sales of the iPod were up 3% over the year ago quarter. There was some sign of weakness in the Mac business with sales down 3% of the year ago quarter and admission by Apple that the mix of Mac sales had shifted toward the lower end of the product line. Apple did point out that Mac sales of the year ago quarter had gown by 51% over the prior year due partially to the launch of the MacBook Air so it was a hard comparison quarter. While this is true the results do reflect weakness on the high end of the PC market and highlights the fact that Apple has chosen not to participate in low end low margin markets.
Clearly Microsoft has tried to capaitalize on Apple reluctance to participate in the low-end mini notebook or netbook market with its ads that feature less expensive Windows based notebooks. While not highlighting netbooks the Microsoft ads do point out the high end pricing of the MacBook Pro notebooks in the comparisons that it highlights in the ads. On has to ask however is focusing on lower prices is the right thing for Microsoft to do. PC makers have been trying to figure out how to attack Apple’s strength in the high end notebook market as these products are high margin high profit products. Microsoft’s ad campaign clearly undercuts these efforts and seems to promote Windows notebooks as the low priced alternative. As has been proven many times in the past price is not a sustainable competitive advantage. While Apple may not choose to compete at the lower end of the price range for PCs at this time that is not to say that the company will avoid it forever. As evidence the iPod shuffle is the lowest price product in Apple’s line but is among the most profitable products that it sells.
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