Apple cuts Mac prices as inventory piles up

The company kicks off the new year with massive price cuts--as much as $1,100 per system--across its entire line of business systems, from Power Macs to PowerBooks, in a nearly unprecedented pricing action.

4 min read
Apple Computer, like many individuals, has a New Year's resolution: Trim the fat fast.

The Cupertino, Calif.-based company is kicking off the new year with massive price cuts across its entire line of business systems--PowerMac G4 and Power Cube G4 desktop systems, PowerMac G4 server and PowerBook G3 notebooks--and apparently abandoning long-standing rebates.

The new deals are available through the online Apple Store and via some catalog and online Mac dealers.

On New Year's Day, Apple cut prices by as much as $1,100 in a nearly unprecedented pricing action.

"I think $1,000 is fairly steep. I wouldn't say it's the biggest I've ever seen, but it's definitely steep," said Tom Ostrander, senior Apple product marketing manager for direct marketer MacConnection.

For businesses interested in Apple products, the time to buy Macs couldn't be better. Apple's top-of-the-line dual 500-MHz-processor PowerMac G4 now sells for $2,499, or $1,000 less than on Dec. 31. Apple's bulkiest PowerBook now goes for $2,199, down from its $3,499 introduction and last week's $2,999 selling price.

Apple's price cuts come as the company has failed to clear a backlog of inventory from dealers' shelves. The computer manufacturer had used rebates of up to $500 to boost sales, but that effort apparently failed. According to market researcher ARS, Apple has 11.5 weeks of systems sitting on dealers' shelves, up slightly from about 11 weeks when the company issued a profit warning early last month.

"This says to me they have to clear a lot of stuff, a lot of inventory, out," said Gartner analyst Kevin Knox. "Bottom line, they're not selling systems, inventory is building up, and they're doing everything in their power to get rid of this stuff."

A drop-off in December
Preliminary retail sales data for the first half of December shows Apple sales plummeted 40 percent, according to market researcher PC Data. By comparison, all retail PC sales declined more than 20 percent for the period.

With the Macworld Expo about a week away and an industrywide price war brewing as Compaq Computer and other PC makers look to clear off store shelves, Apple is backed against a wall. Rumors of a new PowerBook notebook and faster PowerMac G4s have churned up excitement about the expo, where Apple typically introduces new products.

"Apple needs to clear out its inventory glut in order to prepare for the introduction of new products at Macworld," said Technology Business Research analyst Tim Deal. CEO Steve Jobs "wants to start the year with a clean slate in order to more effectively create hype for new or upgraded products," Deal said.

But to sell new systems, Apple must first clear the shelves of the old ones. The cost of doing this could affect Apple for some time. Many analysts had speculated Apple would not cut prices, relying on rebates to spur sales.

That the company significantly slashed prices shows how little effect the rebates had on sales, said PC Data analyst Stephen Baker. "They're in plenty of trouble now," he said. "They obviously have got to find some ways to move some product and get back on track."

Lowering prices now could make it harder for Apple to introduce new products at a higher price later, analysts say. Apple typically has brought out beefier systems for the same price as the old, keeping prices fairly level over time.

"They usually wait for new products to get into the channel before they start to take price actions," Knox said. "I wouldn't say it's desperation mode, but they're feeling a lot of pressure to get rid of the stuff that's out there."

Inventory woes
The inventory problems are expected to contribute to a projected fourth-quarter loss of as much as $250 million.

Apple apparently rode the upgrade cycle of its core users, which analysts said dropped off around the time the company introduced new models--including the G4 Cube--in July. But slow sales followed, including a disappointing back-to-school selling season, driving Apple's inventory from about 3.1 weeks in June to more than 11 weeks in December, according to ARS.

"We're at a point where Apple has probably never been before, with sales falling and inventory building," Knox said.

Slow sales of the stylish G4 Cube apparently blindsided Apple. Apparent cracks in the housing and the stiff $1,799 entry-level price hurt Cube sales, which, Apple acknowledged, contributed significantly to its projected revenue shortfall. The price cuts put Apple's Cube where many analysts said it should have been in the first place: $1,499.

"I anticipate that Apple, now humbled by the lackluster demand of its G4 Cube, will showcase a line of products at Macworld with more features and less fluff," Deal speculated. "Apple must now get back to basics and clearly recognize the needs of its target market."

At the high end, the PowerMac G4 cuts put Apple within reach of higher-end PCs--typically 1.4-GHz Pentium 4 desktops--and the system offers a second processor. Still, Mac OS 9.04 and most Mac software cannot really take advantage of the second processor. That support will come with the release of Mac OS X, now in beta.

The PowerMac G4 with two 500-MHz G4 processors, 256MB of RAM, a 40GB hard drive and a DVD-RAM drive now sells for $2,499, down from $3,499. A similar model with standard DVD drive, as Apple phases out DVD-RAM, dropped to $2,399 from $3,199. The dual-450 system now sells for $1,999, discounted from $2,499. Apple's entry-level, 400-MHz single-processor G4 is $1,299, compared with last week's $1,599.

Both PowerBook notebooks have been deeply discounted. The top-of-the-line 500-MHz G3 model goes for $2,199, down from $2,999. The 450-MHz PowerBook now sells for $1,999, a discount of $400.

Apple also cut its G4 server to $3,099 from $4,199.

While Apple may be clearing out commercial systems to make room for new models to be introduced at Macworld, Knox sees signs of trouble ahead.

"This probably spells a pretty bad fourth quarter for Apple commercial, as well as consumer," he said.