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Apple trims prices, product array

The repricing and simplification of the consumer iMac and eMac lines marks an aggressive move for Apple, which was stung by Windows PC competitors during the fourth quarter.

Apple Computer on Tuesday simplified its consumer Macintosh line and slashed prices as it seeks to gain market share from Windows XP-based PCs.

The company reduced from three to two the number of flat-panel iMac models. It also cut the price of the high-end model to $1,799 from $1,999 and the new entry-level model to $1,299 from $1,499.

At the same time, the high-end eMac dropped to $1,299 from $1,499 and the starter system to $999 from $1,099. The eMac line was originally intended for the education market, but several months later Apple began selling it more broadly.

"Apple is getting aggressive, to try and get back some market share," said IDC analyst Roger Kay. "That's pretty aggressive pricing."

Still, looked at another way, the Cupertino, Calif.-based company is raising the bar for budget-minded shoppers looking for a flat-panel iMac. Before the changes, the lowest-priced model, while less powerful than its replacement, sold for $1,199.

NPDTechworld analyst Stephen Baker praised the high-end iMac, which comes with a 1GHz PowerPC G4 processor, 17-inch widescreen flat-panel monitor, 256MB of double data-rate (DDR) SDRAM, an 80GB hard drive, a 4X DVD recording drive, 64MB GeForce4 MX graphics, a 56kbps modem, 10/100 networking, USB 1.1, FireWire and Mac OS X 10.2.

"When you think of that high-quality 17-inch monitor, that's a pretty good configuration for $1,799," Baker said. "That's a lot of value."

The repricing and simplification of the consumer Mac line couldn't come any sooner for Apple, which was stung by Windows PC competitors during the fourth quarter. During that three-month period, Apple's share of the worldwide PC market dropped to 2 percent, compared with 2.3 percent during the preceding quarter, according to IDC. In the United States, Apple's share declined to 3.1 percent from 3.8 percent.

ARS analyst Toni Duboise doesn't believe the pricing changes have come soon enough. "In order for Apple to stay competitive in this market, Apple has to pull back" on its policy of keeping prices high to boost margins, she said.

For Apple, Tuesday's move was a response to consumer preferences.

"Part of our thing is, how do we keep our product line simple?" said Greg Joswiak, Apple's vice president of worldwide hardware product marketing. "What are customers voting with their pocketbooks? There seem to be two products that customers want. So the question was, how do we build our line around those two models and make them more affordable?"

IDC's Kay noted the value in that reassessment, which trims Apple's consumer product line from six major models--two eMacs and four iMacs--ranging from $1,099 to $1,999.

"This kind of takes Apple back to their original iMac, for which there was only one configuration," he said. "Apple has pruned back the product bush to what are the best-selling products."

But Baker regarded the move as risky, particularly considering "the pretty huge gap" between the $1,799 and $1,299 iMacs.

"Basically, Apple is saying there is a lot of value in the $500 price difference, and, sure, you could make a pretty good case for that," he said. "But that's an aggressive stance. That's a pretty big delta for people to make, and you have to convince them it's worth it."

Joswiak said the price difference offers "a clear delineation" between the value of the two models. "We don't want to confuse our customers, like some of our competitors do, by offering a smear of overlapping price points."

Assessing value
The flat-panel iMac comes with either a 15-inch or 17-inch flat-panel monitor, which pivots off a swinging arm attached to the computer's dome base. The larger model, which also comes with a DVD recording drive, is Apple's best-selling consumer Mac.

"The 17-inch (model) became a big hit for us," Joswiak said. "We've sold more of that 17-inch since its introduction than any other consumer model we have. If we look at the second-most successful, far and away above the rest was the 15-inch combo (drive model)."

Kay said he's not surprised the 17-inch iMac is a top seller. "If you're in the 'gaga' design business, you stand to sell a lot of high-end stuff," he said.

About 50 percent of buyers choose to move up to a DVD recording model, according to Apple. Under the new pricing structure, consumers looking for a Mac with DVD recording capabilities could get an eMac for as low as $1,299 but spend no more than $1,799 for the high-end iMac. Still, Sony's Vaio Digital Studio PCV-RS100, which also packs a DVD recording drive, sells for even less than the eMac, coming in at $799 without a monitor.

"This is going to be a home run for Sony," Duboise said. "Sony is Apple's No. 1 competitor, so far as PCs go."

In fact, the Vaio PCV-RS100 is priced at the sweet spot of the market, which at retail is around $750 right now. "For the last four months, the average selling price has been under $800 every single month," Baker said.

"Our value is about having everything you need in that system, so that you can work better than on any competing system," Joswiak said. "We make things so they work very well together. Certainly our friends over at Sony have made strides in that direction. But only Apple is in the unique position to not only make the operating system (and) the hardware but also the key digital applications."

The repricing comes about a week after Apple cut prices on new Power Mac G4 computers by more than 40 percent. Power Mac is Apple's line of computers aimed at creative professionals, content creators and businesses.

On Friday, Apple also released its iLife digital media suite, which includes iDVD 3, iMovie 3, iPhoto 2 and iTunes 3. The suite ships free on all new Macs, but otherwise costs $49.

"Adding to those two releases a revived iMac line would put Apple in a much stronger position as it tries to lure Windows users to the Mac," said Richard McPike, a Mac user and college student at Southern Methodist University in Dallas.

The iMac, along with iBook and the iPod digital music player, have anchored Apple's "switchers" campaign, which seeks to woo Windows users over to the Mac. Reducing prices and beefing up configurations would be very important for making Macs, which long have been perceived as costing more than PCs, more appealing to potential switchers.

Inner beauty?
McPike described Macs as "gorgeous from the outside" but desperately "in need of an upgrade on the inside. I bought the top-of-the-line machine last January, when the new systems were announced, and since then Apple has yet to make any changes that would entice me to upgrade."

But the new top-end iMac meets McPike's wish list. "A new iMac line, with 1GHz G4 chips, AirPort Extreme compatibility, built-in Bluetooth and FireWire 800, at the same or lower price points, would be a much-needed refresh," he said, before learning about the upgrades.

Besides the faster processor, up from 800MHz in the older model, the new 17-inch iMac moves up to DDR SDRAM, doubles the graphics memory, and adds support for Bluetooth and 802.11g wireless capabilities--or what Apple calls AirPort Extreme. Bluetooth costs an extra $50 and AirPort Extreme an extra $99.

The entry-level iMac comes with an 800MHz PowerPC G4 processor, a 15-inch flat-panel monitor, 256MB of SDRAM, a 60GB hard drive, a CD-RW/DVD combo drive, 32MB GeForce2 MX graphics, a 56kbps modem, 10/100 networking, USB 1.1, FireWire and Mac OS X 10.2. But the 800MHz system supports 802.11b wireless, which at 11 megabits per second (mbps) is a fair bit slower than 802.11g wireless' 54mbps.

The eMac configurations are unchanged from earlier models. The entry-level model comes with a 700MHz PowerPC G4 processor, 128MB of SDRAM, a 40GB hard drive, a CD-RW/DVD combo drive, 32MB GeForce2 MX graphics, a 56kbps modem, 10/100 networking, USB 1.1, FireWire and Mac OS X 10.2. The $1,299 model bumps up to an 800MHz processor, 256MB of SDRAM, a 60GB hard drive and a DVD recording drive. Both eMacs are built around a 17-inch cathode-ray tube (CRT) monitor.

Overall, Apple is moving in the right direction, but it's not enough, Duboise asserted.

"They need to join the party," she said. "To join the party, you have to increase the performance and reduce price."