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Why Apple Will (Eventually) Dump the Mac

You can't help but associate Apple (AAPL) with Mac. From the 1984 Super Bowl ad to Steve Jobs pronouncing the product "insanely great," Macs have been synonymous with the company. But nothing lasts forever, and I predict Apple will eventually dump the product line -- not tomorrow, and not next year, but in the relatively near future -- for a number of reasons.

Move to iPhone

Apple's future is in products that consumers can drop into a pocket. Not only is mobile ascendant at Apple, but so is the iPhone OS. It has proven insanely popular. The iPad runs iPhone OS and evidence suggests that Apple plans other hardware that will use it.

Even though the iPhone OS is a Mac OS derivative, the two have separate code sets that need development and support. They will only diverge more over time. Why support two operating systems when you could move iPhone OS onto laptops and desktops as well as onto Apple TV and have only one? The move saves money, increases efficiency, and frees resources to develop new products and features.

It's the Money, Honey

Most technology companies trade price for market share, hoping for pricing that maximizes total profit. Apple has clearly adjusted prices to increase market share, both with the iPhone and Mac, but the company still keeps premium prices. Higher prices plays into Apple's market positioning of offering more value and they also provide insanely great profits.

According to Apple's most recent 10-Q, the average net sales for a Mac is about $1324. Add "peripherals and other hardware" and "software, service, and other sales" lines, which are closely tied to Mac ownership, and you have $1651 of total net revenue per Mac. The total net revenue per iPhone is about $650, so a Mac is responsible for about 2.5 times as much revenue as an iPhone. My hunch is that hardware and support make a Mac more than 2.5 times the hardware cost of an iPhone, which is around $170. The iPad also has healthy margins. The average revenue per Mac has been steadily dropping for years and, given the product line's maturity, costs won't drop as dramatically. Eventually Mac margins become unattractive compared to rolling out desktops and laptops based on the iPhone OS.

In addition, Apple has found that more expensive iPhone apps can sell well. The company gets 30 percent on everything sold (even when it can't collect payment from customers). Desktop and laptop machines using iPhone OS would let Apple force all third party vendors to sell only through the apps store, which would provide Apple with more revenue and even more control over its product ecosystems.

Death of Mac IP

Apple likes to control markets and has shown its willingness to bully competitors to keep them from getting ahead. The Mac turns 26 this year. Original patents are now out of date and many more are nearing their end of life. Apple needs new weapons. The best way to obtain them is to shift from the existing Mac line to something powered by the iPhone OS, adding a potential 20 plus years of intimidation.

Why the Mac Is Safe, But Only For Now

Apple won't shelve the Mac immediately. Macs represent 28.4 percent of total net sales. In addition, many Apple fans would likely feel aggrieved if deprived of the Mac and could take it out on the company in other areas.

Yet, the balance is shifting. The quarter that ended last December saw a year-over-year total net revenue increase of 32 percent. Mac net revenue grew by only 25 percent even as Mac unit sales were up by a third. The fiscal pressure for better return on resources will increase. All Apple need do is find a way to transition Mac users to iPhone-based machines for more revenue, lower costs, higher profits, and increased control.

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